This makes the purchase of government bonds more fraught than in other jurisdictions. To what extent further steps toward fiscal risk-sharing should be taken, is very much a political question. From my perspective, I can only note that more effective fiscal stabilization would have the potential to make the ECB’s job significantly easier.
The second challenge specifically faced by the ECB relates to the euro area’s financial architecture. Within the euro area, banks play a dominant role. Pervasive banking sector weaknesses like non-performing loans and the bank-sovereign nexus, have plagued the euro area for a long time.