here is a snapshot of risk - sharing mechanisms in emu on the eve of the global economic crisis : financial markets which had developed surprisingly quickly – perhaps too quickly, in the light of the large transnational capital flows within emu ; insufficient surveillance by governments of current account imbalances and insufficient risk management by market participants ; and, at the same time, little policy effort to achieve flexibility, convergence or fiscal responsibility owing to a benign global environment, and perhaps to the erroneous belief that monetary union would in itself engineer convergence. the mix of mobile capital, rigid labour and fiscal underperformance left the euro area vulnerable to a sudden malfunctioning of financial markets. fickle capital could flow out of deficit countries at short notice, leaving them unprepared for adjustment. emu seemed on the way to becoming an endogenous optimum currency area, and insufficient attention was paid to the possibility that markets could become segmented along national borders. such fault lines should have been evident. crisis when the global financial crisis of 2007 – 08 hit the european financial system, the marketbased risk - sharing mechanisms in emu were impaired. the newly developed euro area - wide interbank market, in particular the unsecured interbank market, first froze and, when it recovered, it became fragmented along national lines. a deterioration also occurred in the secured market segment, usually more resilient to market stress. today, yields on money market instruments, and even more on sovereign bonds, have diverged across euro area countries. cross - border bond holdings by banks have been partially unwound, and paneuropean banking groups are tempted to allocate liquidity into national pools. in equity markets, the impact of the financial crisis on cross - border integration seems to have been more limited, but overall, much of the pre - 2007 progress in terms of financial integration risks being erased. 8 since flexibility and convergence had not been achieved to the necessary extent and national fiscal policy had limited ability to provide insurance, the euro area was left with insufficient risk - sharing arrangements. the actions of the ecb and other public institutions – some of them newly created – within their respective domains and according to their mandates, had the effect of temporarily filling this void. official assistance packages – backed by the european financial stability facility ( efsf ) and the international monetary fund – have provided elements of ex post cross - country risksharing to greece, ireland and portugal, which had

##n again. monetary policy the governing council of the ecb has responded forcefully to the largest euro area inflation surge on record. we raised our key policy rates by a total of 450 basis points between july 2022 and september 2023. we had kept them at those restrictive levels until june this year, with the key interest rates – in particular the deposit facility rate, through which we steer the monetary policy stance – contributing substantially to the ongoing disinflation process. following the two 25 basis point cuts in june and september this year, we decided to lower the key ecb interest rates again at our 2 / 3 bis - central bankers'speeches october meeting, based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. we remain determined to ensure that inflation returns to our 2 % medium - term target in a timely manner. our future decisions will ensure that our policy rates will stay sufficiently restrictive for as long as necessary. as we have made clear in our communication, the governing council is not pre - committing to a particular rate path. we will continue to follow a data - dependent and meeting - by - meeting approach to determining the appropriate level and duration of restriction. 3 / 3 bis - central bankers'speeches