Furthermore, the financial and economic crisis forced many governments to intervene in domestic banking sectors, again placing severe strains on fiscal positions in several cases. Vice versa, fiscal sustainability concerns have rapidly spilled over to the financial sector, thus giving rise to a vicious cycle that is difficult to break.
Disentangling this web of mutually reinforcing risk factors is the number one challenge that we, as economic policy-makers, are facing. As I will show, the ECB has played an important role in confronting this challenge.