On the one hand, the government bond yield increases that we saw over the last years certainly contained episodes of overshooting, not fully reflecting economic fundamentals. On the other hand, the re-pricing served as an important wake-up call that strongly pushed for consolidation of public finances and urged policymakers to re-think fiscal governance in Europe.
Secondly, euro area countries were bound by the “no-bail-out” rule and the Stability and Growth Pact. They were supposed to implement the necessary structural and fiscal policies to ensure sound and sustainable economic positions within EMU. However, when we look backwards, the joint responsibility for effective surveillance too often took the form of “peer support” instead of “peer pressure”.