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The financial crisis has brought many challenges for central banks in general, and for the ECB in particular. More specifically, the conduct of monetary policy had to take into account an increasingly large number of uncertainties, while liquidity management by the central banks had to adjust flexibly to implement monetary policy decisions in an environment of distorted money market segments.
The flexibility of the Eurosystem’s operational framework has proved invaluable during the crisis, and it will allow the Eurosystem to adjust, if necessary, to a possible change in the financial landscape.
Of course, the recent sovereign debt crisis in some euro area countries poses additional challenges, also for the Eurosystem. In this regard, it is essential that prudent fiscal and economic policies are employed in all euro area countries. This will reduce banks' current over-reliance on central bank funding and facilitate the ECB’s task of delivering price stability.
In this context, it is important to emphasise that the central bank must remain vigilant in order to ensure that its enhanced intermediation role during crisis times is not abused by fiscal authorities and market participants, as it remains essential that they strictly fulfil their own responsibilities. This approach means that market participants must also adopt a pro-active liquidity management policy and accept trading with each other again. It also implies that different public authorities, like regulators and governments, should also take the necessary measures to stabilise the financial system, so that it can play its part in the recovery of activity and employment.