Catching-up Strategies in CESEE Economies
Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 17: Policy Perspectives on Financial Integration After the Crisis
Ignazio Angeloni1 Among the many consequences of the crisis on the European economy, on financial stability, growth and employment, sovereign debts and risks, and so on, less frequently emphasized is the impact it had – and continues to have, in spite of the time elapsed – on European financial integration. Financial integration is the degree to which the financial sector within a given geographical area is capable of functioning as a single entity, guaranteeing broadly uniform borrowing and lending conditions to its residents wherever located, after risk and other relevant characteristics are accounted for. After making steady progress for several years, financial integration in the euro area has deteriorated markedly since 2007. Financial integration is a necessary feature of a well-functioning currency area, hence this development is a worrisome signal that should not be underestimated. Most of the deterioration occurred in the money and the bond markets, the areas where progress towards integration used to be most visible in earlier years. These markets are central to the proper functioning and the transmission of monetary policy. Recent developments suggest that these losses will not easily be reverted; return to normality will be slow. The actions by central banks and other authorities to preserve the functionality of markets and to reform European financial regulation and supervision, though helpful also from the viewpoint of financial integration, are unlikely to be enough. As I shall argue, it is essential that national governments cooperate, refraining from actions that protect national markets or intermediaries while hampering cross-border integration....
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