In the euro area, our “credit enhancing” policy was almost entirely based on temporary refinancing to the banking system and can easily be unwound. Indeed, gradual phasing out has started with the maturity of the six-month and twelve-month operations.
The speed with which the exit will proceed will depend on how quickly financial markets get back to normality, on the pace of the economic recovery, on banks’ ability to obtain stable funding from private capital markets. Finally, as Balcerowicz forcefully argues, an adequate response to debt distress requires to counter with decision the ongoing erosion of fiscal discipline.