The Exchange Rate Mechanism II A little more than a year has now elapsed since ten new Member States joined the European Union, and their economic integration has been progressing at an impressive pace for a number of years. A number of these countries have also advanced significantly in terms of monetary integration.
Moreover, in our view there was a large degree of endogeneity in credit developments: banks were attaching higher margins to new loans to reflect their elevated risk perceptions; those higher interest rates were then taxing borrowers with outstanding credit and limiting the demand for new credit; this was in turn weighing on the economic recovery and contributing to higher loan delinquencies for banks; and then banks were justified in charging those higher risk premia ex post.