But another reason for the ballooning debt levels was undoubtedly the financial crisis, which forced euro area countries to shore up their banking systems. This was another reason why doubts emerged over the sustainability of some member states’ debt in the subsequent sovereign debt crisis. Rescue measures were swiftly rolled out to prevent the crisis from escalating.
This episode showed that it might be wise for the euro area, too, to have a lender of last resort to support countries facing exceptional circumstances in order to limit the negative fallout for the currency area as a whole. Hence the establishment of a permanent safety net in the form of the European Stability Mechanism (ESM).