But without the latter’s intervention the problem would have remained unsolved, entailing a significant risk for financial stability worldwide. There may be other circumstances in which closer cooperation between regulators and regulated entities is likely to contribute to strengthening the financial system. Innovation has increased the efficiency of risk management enormously. But risk itself has not actually diminished.
Second, the existence of EMU, by supplying a common currency, a common liquidity policy across Europe, a forum in which the issue of coordinating economic policies can be more effectively discussed and solved, is also crucial. In the immediate aftermath of the crisis, the ECB was quick and flexible to respond to the challenge posed by the drying-up of market liquidity.