Private sector consumption and investment were bolstered by the fall in interest rates following Greece’s euro area entry, as well as by rapid credit growth. Relatively high fiscal deficits, although declining in recent years, also helped to boost  4  BIS Review 53/2008  aggregate demand, but at the same time contributed to a further accumulation of public sector debt.
Productive capacity, which has increased, has responded to the growth of demand, but not to a sufficient extent, thus resulting in an excess demand situation. Demand-led growth has its own natural limits. Based as it is on the build-up of debt (both private and public) to finance consumption, ultimately an increasing proportion of GDP will have to be devoted to its repayment.