Despite the fact that national bonds were still issued by the same national governments, banks and other financial players loaded up with them, assuming that the risks we saw on the left-hand side of figure 3.2 had all been magically sponged away by adoption of the euro. This flooded the periphery states with cheap money, completely swamping local wholesale funding markets, thereby making them vulnerable to the capital flight that was to render them illiquid in 2011, while pumping up, in the case of Spain in particular, private-sector indebtedness. While the Northern lenders lent to local banks, property developers, and the like, periphery consumers used this tsunami of cheap cash to buy German products, hence the current account imbalances noted earlier.

Mark Blyth, Austerity, loc. 221