The functioning of the money market is severely impaired, credit is squeezed and the transmission mechanism of monetary policy is clogged. The sovereign debt crisis came to a climax in mid-2012 when the risk of break-up seemed acute. Investors began shifting deposits away from banks in stressed jurisdictions, often to banks in countries where conditions were calmer. The deposit base fell in stressed countries.
Correspondingly loan growth deviated greatly across the euro area. Small and medium-sized enterprises were, and still are, affected the most. What has the ECB done? Over the last six years it has eased the credit squeeze, fought back against the economic slowdown, and countered financial fragmentation by slashing interest rates, flooding the banking sector with liquidity and lending widely.