First, a large part of the fragile fiscal position in these economies is attributable to expenditure on entitlements due to an ageing population without commensurate increase in revenues and lack of growth- enhancing structural reforms. In this process, the public sector structure has become bloated.
Second, due to low domestic saving rate, public debt had to be financed through borrowings resulting in widening of current account deficit and a growing external debt. While the membership of the euro area gave a false sense of comfort to the periphery countries, the intra-euro area financial imbalance remained severe.