This framework includes legal provisions that preclude monetary financing of governments, strict fiscal rules laid down in the Stability and Growth Pact and the “no bailout” clause, which, by ensuring that each country ultimately has to bear the consequences of its own fiscal policy, is an indispensable prerequisite for sound public finances within the euro area.
Indeed, ensuring a level playing-field across banks and countries is essential to foster the return of confidence. The Japanese experience of the 1990s has shown that the major factor behind the fatal delay in bank restructuring and recapitalisation has been political infighting and the immobility of the private sector.