that is now credited with saving the euro.

The ECB is ready to do whatever it takes to preserve the euro,

and believe me, it will be enough.

Greece was in the middle of a debt crisis,

and economic instability was spreading to other parts of the euro zone.

The ECB, the central bank for the countries that have adopted the euro, had to act.

Ten years later, the euro and the euro zone are still intact.

But one core issue at the heart of the crisis still remains.

In fact, it rears its head every time the region comes under economic pressure.

In 1999, 11 countries came together to use one single currency: the euro.

As of 2022, the Euro area boasts 19 members.

And while all the countries in the euro zone have one currency and one central bank setting interest rates,

it's up to their national governments to set their fiscal agendas for the year.

This means making big decisions around taxation and spending.

Unsurprisingly, 19 diverse nations are not going to be in total lockstep on those decisions.

Take a look at their debt levels, for example.

A country's debt-to-GDP ratio is a metric that compares a country's public debt

to its total output – or Gross Domestic Product.

And the range across the euro area is huge.

Estonia, for example, has a debt-to-GDP ratio of about 17%.

Germany's is at 67%.

Italy's is at more than 150%.

And Greece, even to this day, has a debt-to-GDP ratio of almost 190%.

When countries want to raise money from international investors, they issue bonds.

This is kind of like a country handing out “IOUs,” which pay interest, in exchange

for investment that they can then use to fund government projects, for example.

Bonds are a well-established part of the financial market.

So why should we care if one country has more debt than another?

Well, if a country is sitting on a lot of debt, this means every year,

a big chunk of its financial commitments will go towards servicing that debt

or paying interest to whoever owns it.

The higher the debt load, the more investors worry every time yields go up.

A bond yield is how much an investor earns from holding bonds.

While bonds all have a set coupon rate – the term for a bond's fixed interest payments

– a bond can be bought for more or less than its face value.

This will affect the total yield of the bond.

For example, a bond bought at a lower price will have a higher yield

than a bond with the same coupon bought at a higher price.

Bond prices often fluctuate based on credit ratings.

If a bond is seen as investment grade, you pay more.

If it's seen as 'junk', you pay less.

So as the price of a bond goes up, its yield goes down and vice versa.

Angel Ubide is an expert on finance and European affairs.

He explained what this means for the euro zone.

Two identical firms or households have differing financial conditions, or funding conditions,

just as result of the country they are located in.

So, in that sense, your passport becomes a major determinant of your funding conditions.

Of course, there should be differences, but when the differences are very big,

then we can say that monetary policy has been fragmented.

Vitor Constancio was vice president of the ECB in 2012, during the European debt crisis.

With monetary union like the one we have, the national debt markets are sort of demoted

to regional markets and then the countries themselves can't issue their own currency.

so that's a structural reason that makes national debt more bound to become vulnerable

and under pressure of markets.

Basically what you're saying is the reason fragmentation exists is because the euro zone

by design is a monetary union, it is not a fiscal union.

Yes, basically it's that.

Let's return to the Greece crisis to understand how this can turn into a problem.

After it emerged that Greece's reported budget deficit had been grossly underrepresented,

there was concern that its government would stop making repayments on its debt.

This scared investors.

So, they started placing a higher premium on owning bonds issued by the country,

and Greek bond yields shot up, at one point touching 30%.

This effectively locked the country out of the borrowing market.

No investors wanted to touch the bonds out of fear they wouldn't get all their money back.

A restructuring of Greek sovereign debt took place in 2012, which saw private investors

take a 50% haircut in the value of the bonds they owned.

It also saw the country enter into a very strict austerity program under the supervision

of the EU, IMF and the ECB to get its public finances in order.

The Greek crisis was very important – not just because obviously the tremendous economic

damage to Greece – but also because it created this sort of feeling in the euro zone

that all of the crises were fiscal, and everything had to be solved from a fiscal standpoint.

But there was also another issue, that famous words between (Nicolas) Sarkozy and Angela Merkel

that 'every resolution would require a bail in.'

It would require private investors participate in the resolution.

So that created this environment into which every deterioration of the fiscal outlook

made the investors believe there was going to be a restructuring

that was forced by the rescue or the support.

Which is why this crisis didn't end with Greece.

Investors were quick to price contagion to other countries like Italy and Spain,

where the fundamentals had not changed significantly.

And Europe's bond yields, which had been similar since the Euro was introduced, began to diverge.

Investors had stopped seeing the Eurozone as one cohesive bloc,

but instead a group of disparate countries with very different financials.

In short, the Eurozone started to look fragmented.

This is when Draghi's “Whatever it Takes” speech came in.

After this speech, the ECB introduced a new tool called Outright Monetary Transactions or OMT.

It would allow the central bank to purchase an unlimited amount of government bonds

of indebted nations, subject to stringent conditions.

The OMT tool itself has never been used.

But the existence of it was enough to bring spreads down because investors felt comforted

that central bank support would arrive.

For many, this was a turning point.

What do you think the consequences would have been if the ECB had not acted in such a way then?

Well, I don't want to speculate about that too much but of course the pressure would continue.

Yields of Spain and Italy were very high; 7-8% and no justification really and so this fragmentation

would perhaps continue and markets thought, apparently, that they could force

a restructuring also of Italian, Spanish, Portuguese debt.

Well, it didn't happen because we intervened and at that stage, we understood that this

was a sort of domino. because after Italy, Spain it could go on to France and so on.

Ten years on in 2022, fragmentation risks in the Eurozone started rising again.

This time, the ECB introduced another tool, called the Transmission Protection Instrument or TPI,

which could also be used to help stabilize bond markets if needed.

One other difference is this time around, EU nations have moved a little closer towards

joint bond issuance. That takes the pressure off individual countries

in times of need because it doesn't add to their national debt pile.

The Covid-19 pandemic brought about the introduction of a new large common instrument

with the launch of the Next Generation EU Funds, a 750-billion-euro package financed and

distributed at the EU level, not the national level.

Some embryonic elements of the fiscal union are now being born.

Obviously there are some macroeconomic pressures at play right now,

but in terms of the bloc itself, how resilient is it compared to previous episodes in history?

Well there is really no comparison, the situation is much stronger now.

Starting of course with the banking sector which is quite well capitalised and robust,

and went through the covid crisis showing that it kept its robustness.

we had to prove that Europe creates the necessary backstops

when the situation becomes too acute or dangerous.

And I am sure that markets will not attempt to bet against the euro area in the way

they did before because it has been shown that the euro area reacts

and when the situation becomes acute, provides the backstop.