right or to the left. Secessionist factions in Scotland and Catalonia have called into question the integrity of the nation state. Meanwhile, calls have increased for referendums on whether to continue EU membership, as in Britain and Finland. This has added significant uncertainty to the outlook. If the Eurozone continues to grow in line with expectations of 1.5% this year and 1.6% next year, then in most member states a stabilisation and eventual decline in government debt to GDP ratios is likely.
However, the main risk to the Eurozone is a growth shock resulting in even lower growth. As Exhibit 6 shows, applying a two times standard deviation growth shock to Spain results in an increase in its public debt to GDP of 9.9%. In the case of Italy, given its higher debt stock, a similar shock results in an increase in debt to GDP of 23.4%. Although these are only simulations, they show the danger that the more highly indebted countries face in the event of a sharp economic downturn.