If a country's fiscal
situation becomes unsustainable, other countries might be forced to
bail out of the insolvent national government. Alternatively, the
European Central Bank may be forced to monetize national debts,
and in so doing, create additional inflation in the EU. Bolt (1999)
summarizes this argument stating that, “It is in [the following]
context that the Pact for Stability and Growth must be regarded: it
seeks to supplement the common monetary policy framework
within EMU with sound fiscal policies by the Member States so as