But if this fails to trigger the longer-term effect on growth potential, the reduction in the ratio of debt to GDP will be short-lived: the deficit will continue to fuel the debt and GDP will start to grow again at a pace similar to that preceding the spending boost.
This is exactly what happened before the financial crisis. This kind of implicit insurance is not altogether unlike the framework of the European Monetary Union, where a single monetary policy exists alongside 19 largely autonomous economic and fiscal policies. I have already mentioned this special feature of our monetary union. As the crisis taught us, this set-up potentially exposes the EMU to vulnerability.