Lessons from the Crisis
Jean-Claude Trichet
President of the European Central Bank
University of Venice,Venice, 9 October 2009
0
Interbank market spreads
EUR
GBP
USD
350
350
300
300
250
250
200
150
200
August 2007:
Beginning of
the Turmoil
150
100
100
50
50
0
0
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Note: Spreads are the difference between 12-month Euribor/Libor and Overnight Index Swap rates, in basis points.
Source: Bloomberg and ECB’s calculations.
1
Interbank market spreads
EUR
GBP
USD
350
350
300
300
September 2008:
Intensification
of the Turmoil
250
200
150
250
200
August 2007:
Beginning of
the Turmoil
150
100
100
50
50
0
0
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Note: Spreads are the difference between 12-month Euribor/Libor and Overnight Index Swap rates, in basis points.
Source: Bloomberg and ECB’s calculations.
2
The economic freefall
Distribution
of Euro Zone Barometer 2009 GDP forecasts
2.5
Forecast from Jan 09
Forecast from Mar 09
Jul09
-4.5
Forecast from May 09
Forecast from July 09
2
Value of density function
Forecast from August 09
Forecast from September 09
Aug09
-4.3
1.5
Sep09
-3.9
1
May09
-3.8
Mar09
-2.5
Jan09
-1.5
0.5
0
-6
-5.5
-5
-4.5
-4
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
GDP annual growth rate
Source: Eurozone Barometer and ECB calculations. Last observation: September 2009
3
Interbank market spreads
EUR
GBP
USD
350
350
300
300
September 2008:
Intensification
of the Turmoil
250
200
150
250
200
August 2007:
Beginning of
the Turmoil
150
100
100
50
50
0
0
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Note: Spreads are the difference between 12-month Euribor/Libor and Overnight Index Swap rates, in basis points.
Source: Bloomberg and ECB’s calculations. Last observation: 2 October 2009
4
The ECB’s enhanced credit support
Set of primarily bank-based measures to enhance the
flow of credit beyond the standard interest rate channel
 Fixed-rate full-allotment
 Expansion of collateral
 Longer-term liquidity provision
 Liquidity provision in foreign currencies
 Financial market support through
purchases of covered bonds
5
The exit strategy
Four cornerstones:
1. Monetary policy strategy shapes the exit
2. Design of enhanced credit support facilitates exit
3. Ability to act: independence and technical capability
4. Credible alertness: reputation to act when appropriate
6
Anchoring of inflation expectations: euro area
5-year BEIR
10-year BEIR
5-year forward 5 years ahead BEIR
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Note: Data in percent; Last observation 5 Oct 2009
Source: Reuters, ECB Calculations.
7
Lessons from the Crisis
Jean-Claude Trichet
President of the European Central Bank
University of Venice,Venice, 9 October 2009
8