ecb ’ s monetary policy continued to be guided by its objective of ensuring price stability for the euro area as a whole. key ecb interest rates were reduced significantly. in addition, non - standard measures were adopted in order to support the functioning of the transmission mechanism by bringing back liquidity to dysfunctional markets. for instance, in light of the constraints in funding markets for banks, the maturities of longer - term refinancing operations were successively extended, culminating in the three - year operations conducted in december 2011 and february 2012. following these operations, funding constraints have eased, with money market spreads declining. ( slides 7 and 8 ) moreover, the already broad collateral framework has been extended further, with corresponding risk control measures to mitigate the eurosystem ’ s exposure to risk. this has made it easier for collateral - constrained banks to continue to participate in refinancing operations. overall, banks ’ recourse to refinancing operations has been particularly strong in those countries that have been worst affected by the crisis. while open to all, the ecb ’ s non - standard measures have been used most intensively in countries facing financial stress. cross - country differences in the use of non - standard measures have thus largely reflected heterogeneity in financial conditions across the euro area. our policy measures have helped to reduce heterogeneity in financial conditions thereby ensuring a smoother transmission of monetary policy across the euro area. the extent of the heterogeneity in banks ’ financing needs can also be inferred from national central banks ’ balances in target2. these balances reflect the national central banks ’ net claims or liabilities resulting from commercial banks ’ cross - border payments in target2. the increasing net liabilities of some national central banks are a reflection mainly of funding stress in their individual banking systems, with financial outflows being compensated for by increased recourse to eurosystem refinancing operations. ( slide 9 ) our policy measures have, in particular, increased the ecb ’ s intermediation between banks. looking at the interbank market, reduced willingness to lend, especially across borders, has hampered the distribution of liquidity to those banks that are most in need of it, particularly banks in countries facing financial stress. increases in deposits held with the eurosystem by banks in financially strong countries can be seen as an indication of the degree of disintermediation in the money market. ( slide

10 ) banks in such countries tend to be recipients of cross - border payment flows and therefore need less central bank liquidity than banks in countries facing financial stress. the surplus of central bank liquidity in banks in financially stronger countries has raised concerns that such liquidity could fuel asset price bubbles in parts of the euro area, bis central bankers ’ speeches potentially posing a threat to price stability. these concerns are not warranted at the current juncture. thus far, only a moderate recovery has been seen in asset prices. as regards the housing market, developments in money and credit – traditionally good leading indicators of booms in house prices – have remained subdued. however, we will continue to pay close attention to such developments. conclusion to sum up, the measures adopted by the ecb have contributed to greater homogeneity in the pass - through of policy rates to the economy, with a view to maintaining price stability. however, monetary policy cannot provide a lasting solution to the underlying problems causing this persistent heterogeneity. while the ecb can help to ensure a smooth adjustment process and offer temporary relief, this cannot replace the necessary structural adjustment. instead, governments need to act in a variety of policy areas – particularly as regards fiscal consolidation, structural reforms and financial stability – within a reinforced governance framework at the european level. this is the only way that we can put the euro area back on a sustainable growth path. the crisis has highlighted several shortcomings in the institutional framework of emu, and these need to be addressed. this framework failed to ensure sound fiscal discipline in all euro area countries, as well as to prevent or correct the accumulation of financial and competitiveness imbalances. crisis management and financial sector repair – such as the rescue and resolution of financial institutions – were left to national authorities, despite considerable cross - border activity in the financial sector. we saw only too clearly that the interconnectedness of banks and sovereign states can lead to adverse feedback loops between sovereign and bank financial conditions, with significant consequences for the macroeconomic stability of the euro area as a whole. several steps have already been taken with a view to enhancing the governance framework for emu and improving the prevention and correction of fiscal, macroeconomic and competitiveness imbalances. at the same time, an overhaul of the framework for financial supervision and regulation has been initiated. finally, firewalls and crisis management instruments have been established in order to further safeguard financial stability, particularly by addressing the risk of contagion