4  See Tucker, P M W, ‘Money and credit: banking and the macroeconomy’, speech at the Monetary Policy and the Markets Conference, 13 December 2007, Bank of England Quarterly Bulletin Q1 2008, pp 96-106. 4  BIS Review 96/2008  Other bits of central banking Finally, and briefly, I would observe that Blinder’s work on decision-taking processes and structures has so far focused entirely on the setting of interest rates. We have been living through a decade or more in which, at many although not all central banks, other decisions affected the financial landscape and risks to stability. Again drawing on his experience as the Vice Chairman of the Fed Board and again comparing and contrasting different approaches, I think we would all benefit enormously if Alan Blinder took his scholarly apparatus and spirit of enquiry into other corners of central banking and how they fit together. BIS Review 96/2008  5
It reminds us, if need be, that crisis management is always a difficult and potentially long lasting task. Time is a key dimension for fixing the economic and financial systems, which in turn creates the conditions for self sustained recoveries. In a couple of weeks, Greece has been at the epicenter of the phenomenon when doubts about the ability of its government to honor billions of debts maturing in 2010 became widespread. The lack of market confidence translated into spectacular increases in government bond yields. While this extreme situation was largely limited to one Member State, the magnitude of these price movements and signs of contagion to other sovereigns led market participants to fully reassess global sovereign risks. In this global reassessment process even less vulnerable countries were broadly and suddenly impacted with spreads widening very rapidly and reaching sometimes unprecedented levels. The issue at stake is certainly not to refute weaknesses of certain fiscal positions. In fact I, and many ECB Governing Council members alike have regularly called on policy makers to pay due attention to debt dynamics. What was very peculiar was the intensity of contagion between member states and between segments of the financial markets. Some observers have voiced concerns that specific mechanisms were at play, highlighting the potential destabilizing role of speculation and called for decisive policy actions to curb its consequences. I will come back to this issue later on. Looking at the roots of these countries weaknesses, the financial crisis has played a pivotal role.