Furthermore, the overall improvements in financial markets seen since last summer appear to be gradually working their way through to the real economy, as should the progress made in fiscal consolidation. This being said, the remaining necessary balance sheet adjustments in the public and private sectors will continue to weigh on economic activity.
It provides a credible backstop for tail risks and confirms that the euro is irreversible. The second reason debt sustainability is being questioned is that certain euro area countries have debt levels that are too high, or on a sharply rising trajectory. This is more complex to deal with. Inflating away the debt burden is not an option in the euro area.