As is evident from the chart, market discipline was largely absent during the first ten years of EMU, allowing governments to pursue unsustainable policies. And when markets finally started to differentiate between governments, they did so with a vengeance. Although market discipline is now imposing necessary corrections, a stable monetary union cannot be based on this mechanism.
The faster this can be achieved, the better, and – though that is more easily said than done – it is clearly desirable to aim for a earlier restoration of confidence.