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 The SMP programme was finally superseded by the so-called Outright Monetary Transactions (OMT), announced in September 2012 but so far not activated.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.
This correction is painful and requires perseverance of all responsible parties. The reward should be positive results that are now in fact tentatively observable. Third, governance reforms at the level of the euro area and the European Union at large have contributed to an improvement of the foundation for a better performance in future, and this work is still in progress. The multi-layered crisis  When looking at the crisis as it has developed since 2007, it can be helpful to use the metaphor of an iceberg. In each phase of the crisis we have discovered new layers, from the visible tip of the iceberg to the dangerous ice cliffs that linger under the surface – and which, in the economic context, have emerged in the subsequent phases, each time proving to be larger than previously thought. This has challenged policy-makers to acknowledge the real dimensions of the problems, and to adjust their response accordingly. The tip of the iceberg – the liquidity crisis – was revealed in mid-2007 when the US mortgage market, which lay at the basis of a complex, tangled web of globally-held financial derivatives, took a sharp down-turn. This triggered the first case of what we have later come to describe as “frozen” interbank-markets around the world, quite a fitting extension of the iceberg metaphor. The underlying cause was a spike in counterparty risk, due to the obscure distribution of exposures to the risks in the market for subprime mortgages.