This was possible thanks to a crucial flaw in the system: countries that violated the deficit limit were not automatically punished. Instead, the other member states voted on a sanction. And this – to quote the ECB’s former chief economist Otmar Issing, led to a situation in which sinners passed judgement on fellow sinners.
Shin (2010), “Financial intermediaries and monetary economics”, in B. Friedman and M. Woodford (eds. ), Handbook of Monetary Economics, Edition 1, Volume 3, October. ; Maddaloni, A. and Peydro, J.-L. (2010), “Bank risk-taking, securitization, supervision and low interest rates: evidence from US and Euro area lending standards”, Review of Financial Studies, http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1248.pdf; Jimenez, G., Ongena, S., Peydro, J.-L. and Saurina, J.