The cross-border integration of credit and capital markets would facilitate a smooth transmission of the single monetary policy across the union, allowing the central bank to stabilise area-wide shocks. And the risk-sharing benefits of financial integration would help absorb local macroeconomic shocks that could not, by definition, be addressed through monetary policy – nor, by design, through a federal euro area budget.
Indeed, financial risk-sharing would be crucial to prevent national budgets from being overburdened in severe local downturns.1 These benefits are one reason why, 15 years ago, the topic of this conference was “The Single Financial Market – Two Years into EMU”.