It reminds us, if need be, that crisis management is always a difficult and potentially long lasting task. Time is a key dimension for fixing the economic and financial systems, which in turn creates the conditions for self sustained recoveries. In a couple of weeks, Greece has been at the epicenter of the phenomenon when doubts about the ability of its government to honor billions of debts maturing in 2010 became widespread. The lack of market confidence translated into spectacular increases in government bond yields. While this extreme situation was largely limited to one Member State, the magnitude of these price movements and signs of contagion to other sovereigns led market participants to fully reassess global sovereign risks. In this global reassessment process even less vulnerable countries were broadly and suddenly impacted with spreads widening very rapidly and reaching sometimes unprecedented levels. The issue at stake is certainly not to refute weaknesses of certain fiscal positions. In fact I, and many ECB Governing Council members alike have regularly called on policy makers to pay due attention to debt dynamics. What was very peculiar was the intensity of contagion between member states and between segments of the financial markets. Some observers have voiced concerns that specific mechanisms were at play, highlighting the potential destabilizing role of speculation and called for decisive policy actions to curb its consequences. I will come back to this issue later on. Looking at the roots of these countries weaknesses, the financial crisis has played a pivotal role.

This decision proved once again the flexibility of our operational framework and contributed to maintain a normal functioning of the monetary policy transmission mechanisms and to mitigate strains on interbank markets. It allowed avoiding strong and potentially pro-cyclical threshold effects of credit rating agency unilateral decisions. 2)  Then, the launch of the Securities Markets Programme (SMP) on the 10th of May marked a new step of the Eurosystem’s response to the financial crisis. This measure consists in intervening in the euro area’s public and private securities secondary markets to ensure depth and liquidity in markets that have been affected by severe disruptions. The objective of this program is to address the malfunctioning  BIS Review 84/2010  3  of securities markets and to restore an appropriate monetary policy transmission mechanism. These interventions were sterilized as liquidity injected was exactly drained, thus fully neutralizing the effects in the banking system. This historical and exceptional type of intervention has stemmed from the spillover of increased financial market volatility, liquidity risks and market dislocations. 3)  Additionally, the ECB reactivated, in coordination with other central banks, the temporary liquidity swap lines with the Fed and resumed US dollar liquidity providing operations in order to alleviate pressures on funding in dollar. The reactivation of this measure followed the revival of strains on foreign exchange markets and highlights the central role that cooperation between central banks has taken in recent years in order to preserve cross-border operations and financial stability at the global level.