In Europe, financial institutions' lending attitudes have become tighter as in the United States. Demand in the area is slowing due to the deterioration in the terms of trade reflecting the earlier increases in commodity and materials prices, and export conditions are worsening reflecting developments in the world economy. In this situation, economic activity in Europe has also been sluggish.
As laid out in the Commission’s report on “One Market, One Money” in 1990, EMU was expected to create both “microeconomic efficiency gains, which arise from the elimination of exchange rate uncertainty and transaction costs, and lead to a permanent increase in output”, and “macroeconomic stability effects, which arise from the elimination of intra-Community exchange rates and from policy discipline in the monetary and fiscal fields.” Macroeconomic stability was also expected to be supported by increased financial integration, as in a monetary union “private markets will finance all viable borrowers, and savings and investment balances will no longer be constraints at the national level.” 2 Expectations for the positive effects of EMU always depended crucially, however, on the notion that euro membership would have an endogenous effect on the quality and efficiency of national economic institutions – by which I mean, among other things, institutions governing competition, wage bargaining, civil justice, banking supervision and fiscal policies.