The economic consequences of the pandemic have especially affected those countries that already had relatively high debt levels prior to the crisis and where confidence in the ECB was rather low. [21] At the beginning of the pandemic period, there was thus a concern that limited fiscal space in some euro area countries would significantly constrain the fiscal response to the crisis.
These fears increased the risk of fragmentation in euro area financing conditions, which was immediately reflected in the evolution of risk premia in European bond markets. The ECB effectively countered this risk, in particular by swiftly implementing the PEPP (Figure 10). Figure 10 10-year yield spreads of selected government bonds over German equivalents.