The ECB’s response to these unprecedented conditions was twofold. First, the ECB revived the longer-term refinancing instrument that had proved particularly effective in the aftermath of the Lehman demise. Central bank liquidity was made available to banks for up to three years. This eased the pressure particularly on banks located in the countries that had been hit by the sovereign debt crisis.
Second, the announcement of Outright Monetary Transactions (OMTs) in the summer of 2012 removed the euro area break-up risk which markets – by that time – had started to price into the yields of securities issued by the governments most impaired by the sovereign debt crisis. The impact of the announcement on market sentiment was instantaneous and material to an extent few had anticipated.