Assessing Debt Sustainability in the Euro Area

In the euro area, as in many countries, the COVID-19 pandemic led to a substantial increase in government debt. This column discusses a new approach to evaluate public debt sustainability in the euro area. Over the past ten years, the ECB has played a key role in stabilising the European sovereign debt market. However, the recent inflationary surge could be a game-changer because a strong reaction by the ECB and a rapid increase in real rates could spell trouble for a number of peripheral European economies.