While the high delinquency levels and subsequent pullback of credit for subprime loans was certainly foreseeable, what was less obvious was the degree to which problems in the subprime market would spread to the market for prime loans.
The authorities should step up their supervisory action and prudential controls as recommended by the European Insurance and Occupational Pensions Authority. The risks, both real and financial, would have been far greater had we not begun the asset purchases. The greatest threat to the euro area’s financial stability comes from the prospect of a stagnation of production and low inflation, which the programme combats.