But the weak institutional framework for fiscal  BIS Review 134/2010  3  discipline at national and at Euro area level as well as the absence of control by financial markets was emphasized in some countries by three developments: 1.  an overextended national financial system  2.  an insufficiently strong starting position in the cyclical downturn in terms of deficit and debt  3.  a rapidly deteriorating competitive position as shown for example in unit labour costs or current account balances  Suddenly markets reacted and overreacted while Governments excelled in denial and cloak and dagger stories.
This slow reaction forced the ECB into action as a back-stop exposing the unfinished work of the institutional set-up of EMU just as the financial crisis had exposed failures in the macroprudential area throughout the industrial world. In both cases, the welfare price of overly relying on market reaction only has become clear. Now credible deleveraging has been implemented in many countries.