The increasingly critical sovereign debt problem in Europe is basically caused by the fact that having already enjoyed most of the benefits arising from European monetary unification, euro area countries are now being asked to pay the price. For some peripheral European countries such as Greece, the main benefit of unification was a dramatic decline in funding costs such as government bond yields.
In exchange for the decline in funding costs, these countries were expected to enhance their growth potential and solvency through the conduct of reforms in the labor markets, as well as tax and administration systems. In other words, the euro area was supposed to become a sustainable system only after going through such a process.