If, in a simple one-country setting, sovereign debt becomes unsustainable, the central bank always retains the option – in theory and partly in practice – to monetise the debt. The shortterm implication of such monetisation is that sovereign credit risk will be replaced by both an inflation and exchange rate risk.
In other words, the currency of that country will no longer be considered as a good store of value, either domestically or externally. None of the above constitutes a feasible scenario for the euro area, which is characterised by a unique combination of centralised monetary policy-making and largely decentralised, albeit closely coordinated, fiscal policy-making.