In other words, abundant liquidity undermined market discipline, which could otherwise have become an important pillar of macroeconomic and fiscal discipline in the euro area. 4. Shortage of safe assets and global liquidity  There is also a striking link between the global liquidity cycle and the shortage of safe assets in the global economy. Let me elaborate.
Financial crises, but also economic downturns in general, trigger a rise in global risk aversion. This in turn induces a flight to safety by global investors, resulting in an excess global demand for safe assets. As an illustration, think of the current nominal yield on some short-term sovereign debt, which is close to zero and has even turned negative in some constituencies.