Monetary policy responded first in the summer of 2012 by acting to defuse the sovereign debt crisis, which had evolved from a tail risk for inflation into a material threat to price stability. Announcing Outright Monetary Transactions (OMT) established our commitment to counter unwarranted redenomination risks in sovereign debt markets and acted as a powerful circuit breaker.
While OMT was never activated, the effect of its announcement was equivalent to that of a largescale asset purchase programme: spreads in vulnerable countries fell on average by more than 400 basis points over the next two years.