In fact, what happened is that the very low market interest rates that existed only in a small number of economies were immediately extended to the full body of the euro area. Long-term inflation expectations aligned with the low levels of the best performing economies that were merged into the euro.
The Government had to adopt difficult measures of budget consolidation to reduce the structural deficit from –4.6 per cent of GDP to –2.5 per cent last year. The recession we are now going through, with annual growth this year around –1 per cent, is making things more difficult for fiscal policy.