Second, the perception that the central bank will always “pick up the pieces” might give incentives to excessive risk-taking and high leverage. Even in good times that perception could discourage sound fiscal policies and prudent financial behaviour. In the design of non-standard measures and in its communication, the ECB has taken great care not to give such adverse incentives to either banks or governments. The following elements, among others, serve as proof:   The non-standard measures are temporary in nature. Some of them will expire automatically, if not renewed. On top of that, we have all the necessary instruments to reverse the current situation of abundant liquidity provision.   The mandate of the ECB as stipulated by the Treaty has an unambiguous focus on price stability. In combination with the ECB’s monetary policy strategy it provides a clear guidepost and has proved effective in anchoring inflation expectations over time.   The monetary policy strategy gives a prominent role to the monetary analysis which captures money and credit developments and ensures a symmetric reaction to financial forces.   The design of the tool called Outright Monetary Transactions creates the right incentives for governments to improve their performance with respect to fiscal prudence and structural reforms. I will expand a bit further on this fourth point. OMTs will only be activated in cases where the benefiting country has signed up to strict and effective conditionality attached to an appropriate European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) programme.
In order to allow banks to mobilise a larger share of assets for refinancing purposes, the Eurosystem expanded the set of assets that could serve as collateral for central bank credit. Belonging to the same family of tools are the two 3-year Longer Term Refinancing Operations that were announced a little more than a year ago, also to address a funding crunch in solvent banks. As a further step to address the banks’ funding problems and the deep financial fragmentation within the euro area, the instrument of intervening in securities markets was launched. This tool has been available to the ECB since the inception of the third stage of Economic and Monetary Union in 1999, but it was not until 2009 that it was actually used. The first action of this type was the purchase programme for bank-issued covered bonds. In May 2010 the Securities Markets Programme (SMP) took effect, in conditions in which the collapse in the markets for securities issued by distressed governments threatened a renewed wave of chain defaults. The SMP programme was finally superseded by the so-called Outright Monetary Transactions (OMT), announced in September 2012 but so far not activated. I will talk more about the OMT later. The standard measures have definitely served their purpose, to maintain price stability. And it is undisputable that the non-standard measures have helped repair the monetary policy transmission mechanism by alleviating funding pressures in banks and thus complementing standard measures.