This fragmentation is all the more troublesome in an economy such as that of the euro area, in which financial intermediation is bank-based for at least three-quarters of firms’ financing. And it penalises all the more those enterprises, often of a small or medium size, which depend more heavily on the banking system.
With the supply of such investment opportunities declining, FDI inflows are bound to decline as well. Of course, we would be better off today if some of the imbalances could have been prevented. The correction of these imbalances now contributes to economic slack.