However, if shocks do occur, they are likely to have a wider impact across borders through wholesale banking and capital market links – or through payment and settlement systems. Thus, the contribution of the Eurosystem to monitoring vulnerabilities in the financial system on a euro area-wide basis will be greater if the central banks are extensively involved in prudential supervision.
That brief review brings us to this year, which began with a few bright spots: Concerns about corporate governance were apparently receding, employment and industrial production moved up solidly in January, and the unemployment rate edged down a bit. Unfortunately, these improvements were short-lived. In late February and early March, as the confrontation with Iraq heated up, uncertainty was pervasive.