Monetary policy response to the first wave When the pandemic first broke out in Europe, financial conditions tightened significantly. Euro area stock markets fell into turmoil, collapsing by more than 35% in only a few weeks as investors rushed into safehaven assets (see left chart slide 2).
The euro area sovereign bond market fragmented, causing spreads on lower-rated government bonds to rise sharply (see right chart slide 2). At the same time, corporate credit spreads reached levels last seen in the midst of the euro area sovereign debt crisis. In short, the very stability of our financial system was at risk and the transmission of our monetary policy was severely impaired.