Some commentators suggest that governments should always take on leverage when there is excessive deleveraging in the private sector. But this option rapidly reaches its limits in the presence of debt sustainability concerns. And it has done so more quickly in the euro area than in other economies where the institutional framework is different.
In a context of macroeconomic imbalances across the euro area countries and financial market fragmentation, the Eurosystem balance sheet has expanded in size, with an increased concentration of liquidity provision to banking systems in countries under strain. The asymmetric distribution of the ECB’s action across the euro area has attracted attention, also from a political viewpoint.