“ enhanced credit support ”, aimed to sustain financing conditions and credit flows above and beyond what could be achieved through reductions in key ecb interest rates alone. they included lengthening of the maximum maturity of refinancing operations, extension of the eligible collateral list, provision of liquidity in foreign currencies, covered bond purchases, and, above all, provision of unlimited liquidity in all refinancing operations at a fixed rate. enhanced credit support fostered a considerable improvement in market liquidity and helped to alleviate funding risks. the measures also protected us against any possible deflationary situation and helped focus on medium - term price stability. earlier this month, at a time when we had already exited from some of our enhanced credit support measures, we were suddenly faced with renewed market tensions. this time, they erupted in a number of segments of the euro area ’ s debt securities markets. after very careful consideration of all implications of acting, as well as of those of not acting, we decided to intervene in these markets starting on 10 may by launching our securities markets programme. along with cuts in our interest rates back in 2008 and early 2009, and measures of enhanced credit support, this programme constitutes the third element of our response to the financial crisis. in my remarks today, i would like to give you some further details about this third element : why we have introduced it, how it is designed to operate and why it is in line with the key principles of our monetary policy - making. and i would like to place our actions in the context of the broader challenges for economic policy - makers and private sector decision - makers, in our collective pursuit of return to financial stability and ensuring a sustainable economic recovery. the fundamental importance of a functioning transmission mechanism of monetary policy like all other non - standard measures we have taken, the securities markets programme is time - bound in nature. it aims to ensure the proper transmission of monetary policy impulses to the wider economy and, ultimately, to the general price level. to achieve our primary goal of ensuring price stability, monetary policy - making needs to be effective. in this respect, wellfunctioning securities markets are indispensable. let me briefly describe why this is the case. we implement monetary policy by setting our key policy rates. through this, we directly influence short - term interest rates in the money market. financial markets transmit this impulse along the maturity spectrum, since term rates reflect current and expected future short - term rates as well as risk

premia. these rates, in turn, affect the costs of funding for households, for firms, and for governments. the resulting financing conditions affect economic activity and, in the end, prices. the functioning of the market for government bonds is central to the transmission of the ecb ’ s policy rates. this is because of several channels. via the price channel, interest rates on government bonds influence financing conditions within the economy. for example, they are often used as a reference rate when a bank prices a loan for a customer, or when a company borrows money by issuing a bond. sovereign financing conditions, under normally functioning bond markets, often provide a floor for the funding conditions of the private sector. interest rates on government bonds always include add - ons to compensate for liquidity risk and credit risk. but these risk premia should not become so large that they dominate the signal from the key policy rates to a point where it is no longer distinguishable and does not reach the real economy. this can happen when markets no longer function properly. closely related is the liquidity channel, which comes into play at the start of the transmission mechanism, influencing short - term interest rates beyond the conditions set by policy rates. government bonds are often used as collateral for banks ’ refinancing operations. in fact, government bonds are the primary collateral used in the secured interbank market. if government bond markets are disrupted, this hampers the functioning of the interbank market and reduces liquidity in this market. the consequences are increased money market rates due to premia for liquidity risk. as a result, the capacity of banks to issue loans and refinance the real economy suffers. a third channel, the balance sheet channel, is indirect : lower government bond prices, which correspond to higher bond yields, imply valuation losses in the assets held by the financial and non - financial sectors. for banks, the lower capital base may mean that they can supply fewer loans to the economy. for borrowers, their creditworthiness is reduced, and this affects their capacity to borrow. because of these channels, severe tensions in the bond market hamper the monetary policy transmission mechanism. the relation between our key interest rates and the rates applicable in the real economy gets out of order, and our main tool for influencing refinancing conditions in the real economy does not work the way it should. this is the situation that threatened us at the beginning of this month, so we saw the need to act quickly