Target balances, an indicator of euro area fragmentation and capital market malfunction, reached an all-time high at levels above 1,000 billion euro in the summer of 2012, even though current account imbalances were already being reduced. In this challenging environment, we were losing the steering ability of our monetary policy.
The single monetary policy had shifted from “one size fits all” to “one size fits none”. Let me make a general remark at this stage. How should central bankers act in such an environment? Policy makers have always the option of doing nothing.