In the absence of a common fiscal capacity, and with public debt at elevated levels owing to the pandemic, parts of the euro area remain vulnerable to sudden shifts in investor sentiment. There are three mitigating factors at present, however.
One is that the combination of a long period of historically low rates and the marked increase in the weighted average maturity of public debt has measurably reduced the sensitivity of debt to changes in market interest rates. The average interest rate will remain low for some time even if the marginal interest rate starts rising (Slide 13, left-hand chart).