Monetary union, therefore, holds incentives for an individual member state to run up higher debt as the negative effects of greater indebtedness – meaning higher borrowing rates – are partly borne by the other member states. This can be compared with the overfishing of the seas as it, too, affects both the community of neighbouring countries as well as the country causing the problem.
This would suggest that growth potential in the medium-term would be at the lower end of the 4 to 5 per cent range. It is important that expectations are adapted to this somewhat lower, but still very satisfactory, rate of potential growth over the medium-term. Credit growth continues to be a worry.