But even as the assumption of sovereign debt was ruled out, the fiscal rules were breached numerous times, not least by Germany and France. In addition, investors made hardly any distinction between the bonds of individual member states. From 1999 to 2007 the average difference between EMU government bonds, excluding Germany and German government bonds, for instance, was a mere 14 Basis Points.
I leave it to you to decide whether this was because investors were neglecting the growing differences in economic fundamentals or because they never really believed that the no-bail-out clause would hold when the going got tough.