Apart from the fact that the banks displayed an increasing reluctance to voluntarily invest in the State Government paper, the market had started discriminating amongst the States based on their perceived strengths and weaknesses; thus adversely affecting completion of the approved borrowing programme for the States.
In its brief history, the Eurosystem has already dealt successfully with three external shocks and crises. We have witnessed the Asian crisis in 1997-99, an oil-price shock in 1999-2000 and, most recently, the terrorist attacks. Europe did not escape unscathed from all these events.