On the other hand, this set-up also creates vulnerabilities. Firstly, such a combination creates a deficit bias, as it allows costs to be shifted partially on to others. If a worsening fiscal position in one country has repercussions for monetary union as a whole, others may step in and bail out.
And secondly, central banks’ balance sheets can serve as a conduit for shifting risks among national taxpayers, even if there are no explicit fiscal transfers and irrespective of the approval of national legislatures. The founding fathers of the euro clearly foresaw that risk.