Unsound fiscal policies in turn would make it more difficult for monetary policy to maintain price stability at low interest rates and could lead to pressure on the central bank to “communitise” government debt through its balance sheet. The convergence of long-term interest rates to what for the countries at the euro area periphery were historically low levels had a number of implications.
In some countries, private or government consumption grew faster than the economy’s potential output. In addition, in some countries, a significant real-estate bubble was the consequence. The international competitiveness in a number of countries deteriorated. Necessary reforms to make labour, product and services markets more flexible were postponed.