When governments know that the ECB will stand behind them in a crisis the discipline of the market is weakened. Leaders can postpone difficult reforms and keep spending high to maintain short term popularity. That works until confidence erodes and investors start asking hard questions about repayment capacity. The comparison to Greece is apt but the stakes today are larger because the imbalances involve the core members as well as the periphery. If France’s debt ratio is truly at 114 percent and Germany is no longer the backstop the system relies on then the safety net is thin. What makes this more dangerous is that the EU itself is now a borrower which ties the fortunes of all members together more tightly. That integration was meant to create stability but without fiscal discipline across the bloc it can magnify the shock when things go wrong. The question is not whether the numbers look worrying the question is whether there is a credible path to reduce them before the next downturn forces a reckoning.
When governments know that the ECB will stand behind them in a crisis the discipline of the market is weakened. Leaders can postpone difficult reforms and keep spending high to maintain short term popularity. That works until confidence erodes and investors start asking hard questions about repayment capacity. The comparison to Greece is apt but the stakes today are larger because the imbalances involve the core members as well as the periphery. If France’s debt ratio is truly at 114 percent and Germany is no longer the backstop the system relies on then the safety net is thin. What makes this more dangerous is that the EU itself is now a borrower which ties the fortunes of all members together more tightly. That integration was meant to create stability but without fiscal discipline across the bloc it can magnify the shock when things go wrong. The question is not whether the numbers look worrying the question is whether there is a credible path to reduce them before the next downturn forces a reckoning.