Conclusions
First, long historical experience suggests that central banks have an important role to play in contributing to financial stability, including containing contagion risks. They can do so by providing an anchor for stability through delivering on their primary objective of price stability, by providing as much liquidity as quickly and widely as needed, and by providing analysis and coordination to other policy-makers and market participants.
Second, in the context of its systemic risk surveillance the ECB spends significant resources in identifying and assessing contagion risks. No matter how difficult it is to collect all the relevant information and to design the appropriate analytical tools, most pieces of evidence point to the existence of very significant financial and sovereign contagion risks in the euro area at the present juncture.
Third, containing such contagion is of great importance for overcoming the ongoing European debt crisis. There would be enormous economic and social damage if the ECB and other competent authorities do not respond appropriately and decisively within their respective mandates.
Fourth, whilst the ECB’s action has been decisive and effective this alone is not enough. All parties need to live up to their responsibilities. It is of utmost importance that the agreements of the heads of state or governments of the euro area and EU institutions of 21 July are honoured and rigorously implemented. This concerns particularly the ratification of the reform of the EFSF by all Member States that have not yet done so. Moreover, all countries should meet their fiscal targets and introduce structural reforms that restore competitiveness and growth potential where they have been lost over the last decade.
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