How will the monetary policy of the ECB respond if the ECOFIN Council exercises its powers under Article 111 of the EC Treaty, for instance by formulating general orientations or exchange-rate policy? Will the stability reservation laid down in that clause actually hold up? In my opinion, the ECB deserves our full confidence in all of these questions.
This approach departs from the conventional market efficiency view that rational traders will immediately stabilise prices by shortening overvalued assets and, by contrast, integrates important aspects of trading behaviour into the mainstream of economics and finance. When a bubble bursts and risk is re-assessed, financial institutions suffer losses.