Still, most countries eased fiscal policy in 2009 as part of concerted European efforts to offset the negative impact of the crisis on growth and employment. This caused further deterioration of public finances, and for several euro area member states it led to an outright sovereign debt crisis.
One reason was that the banks’ non- performing loans eventually became a problem for the public sector, thereby weighing down on government finances. In many countries, fiscal expansion during the boom immediately before the crisis has now made way for extensive consolidation. In other words, fiscal policy has amplified cyclical fluctuations instead of dampening them.