The situation only got worse when the sovereign crisis – that started in Greece in late 2009 – progressively spread to other euro area countries with vulnerable fundamentals. As we have seen in our discussions today, the trigger of the crisis in the euro area shows, to a certain extent, similarities to those that affected Latin America in the past: a stop in  2  BIS central bankers’ speeches  foreign capitals inflows, which induced severe financial stress and real adjustment. But also differences, due to the fact that this reduction of capital flows took place in a highly integrated monetary union, with its own peculiar adjustment mechanisms, leading to the segmentation of the euro area capital markets. These peculiarities also contribute to explain the huge magnitude and depth of the crisis. The scale of the imbalances and adjustments surpasses those in Latin American past experience. Correspondingly, the challenges that individual countries and the area as a whole are facing are daunting. Indeed, the policy response to the crisis – both at the national level and at the level of the EU and the euro area authorities – has been substantial, particularly in the structural and institutional dimensions. The euro area authorities have realised that, in parallel to the management of the crisis, a reshuffling of the European governance and a strengthening of the institutional framework are necessary for the long term sustainability of EMU.
But, the slow process of decision making in Europe, the difficulties of policy implementation and the debate around the burden-sharing of the crisis have limited the positive effects of those policies on confidence and credibility. In this setting, the ECB and the Eurosystem have played a central role. While safeguarding their paramount objective of price stability, their actions have been directed to re- establish the proper functioning of the transmission mechanism of monetary policy, as shown by the recent decisions by the Governing Council on the O[utright] M[onetary] T[ransactions] initiative. Some big steps have been taken on the institutional front at the European level. Fiscal rules have been strengthened and refined, governance reinforced and, in the financial sphere, great progress is being made to establish a common supervisory framework. In parallel, national constitutions have been adapted in several countries – Germany, Spain and others – to comply with these new requirements. This overview of the problems and challenges in Europe may be compared with the evolution of Latin America during the crisis and its aftermath. The Latin American performance during the crisis shows that these countries have drawn the lessons from the similar episodes they went through in the late nineties and early 2000’s. In particular, I would highlight two characteristics of the economic setting that has made the region so resilient to the external shock this time: the improved macroeconomic framework – underpinned by price stability – and the reinforcement of financial stability.