For instance, higher risk premiums in response to unsustainable policies in one Member State could spill over to other euro area countries. Hence, membership in the euro area also means compliance with a stringent regulatory framework, the Stability and Growth Pact.
This dynamic is clearly unsustainable. The nation’s long-term fiscal imbalances did not emerge overnight. To a significant extent, they are the result of an aging population and fast-rising health-care costs, both of which have been predicted for decades.