Nothing alerted governments to the sharp widening of yield spreads for highly indebted countries from 2010 on: suddenly levels of debt and of public spending that seemed perfectly sustainable at the old levels of risk appetite and the old assessments of credit risk in the euro area, were no longer secure [Chart 5].
The risk of debt restructuring, reinforced by the case of Greece, where sizable losses have been incurred by investors in government bonds, has caused yields on government debt in many parts of the euro area – and as a result most other forms of debt in those countries – to soar.