The justification for restrictions on national fiscal policies has always seemed flimsy and that may be one reason why whenever they have seemed to bind there is reluctance to really make them apply in a meaningful way. It is the existence of a (misplaced) belief that bailing out a euro area government facing default on its debt is somehow warranted that underlies much of the case for restrictions on national policy. Better to remove perceptions that there is a Euro backstop protecting euro denominated government bonds than create a set of fiscal rules that are not effective.

Trying to figure out what the fundamental value of an asset should be (i.e. the price absent bubbles or irrational optimism or pessimism) is very hard. Even if one could do so, using monetary policy (the central bank's policy rate) to eradicate the divergence from the fundamental value is deeply problematic when often the policy rate needed to keep consumer price inflation stable would be very different. A better strategy is to use macro-prudential instruments to reduce the risks that asset price mis-alignment bring economic instability.