Concerns about financial securities backed by U.S. mortgages spread to assetbacked securities more generally, which led to funding difficulties in European money markets at anything but the shortest maturities. Moving into 2008, concerns about potential spillovers from slower U.S. growth and weaknesses in the financial system weighed increasingly on advanced economy equity markets.
It is clear that much work remains to be done to make the European financial system safer. We need to evaluate the sufficiency of the toolkits of the national authorities and the ECB, as well as learning how to use the new tools most effectively; this is a work in progress and should continue. But we are taking important steps in the right direction.