Liquidity was suddenly drying up in stressed countries, threatening to lead to a destructive downward spiral of abrupt deleveraging, fire sales and ultimately deflation. By contrast, there was a risk that abundant liquidity in core countries would unduly drive down financing conditions and fuel asset price bubbles. In fact, as market interest rates were surging in countries under stress, they declined in core countries.
German two-year government bond yields turned negative in early July 2012. Deposit outflows and augmented recourse to central bank borrowing as a substitute for the lack of alternative funding were reflected in intra-euro area payment imbalances.