With regard to  2  BIS Review 31/2009  fiscal policy, respecting the provisions of the Stability and Growth pact is of the essence. What is needed is a credible and strong commitment to reducing excessive deficits and to returning to the path of consolidation. Rising CDS premia on sovereign bonds have induced speculation about potential defaults on the part of EMU countries.
Any concerns in this regard are unfounded and only purely hypothetical. While it is in general welcome that financial markets punish unsustainable public finances, it has to be acknowledged that even euro area member states with high yield spreads are currently facing favourable refinancing conditions given the unprecedented low interest rates.