In combination with high current account deficits, resulting from lack of competitiveness, this leaves these countries especially vulnerable to changes of sentiment in the international capital markets (slide 4 – current account).
Despite marked differences between the economies with high debt ratios in the euro area, they all saw a significant reduction in the risk premium – and thus the level of interest rates – following the introduction of the single currency in 1999 (slide 5 – yield spreads). This immediately eased the financing burden on their very substantial government debt.