Moreover, liquidity itself could become a contagion channel by triggering discreet changes in asset prices, in the capital base of financial institutions, and thus by feedback onto banks’ funding capacity. As a result, interbank markets have now become a source of crisis, or even aggravate a crisis, as fundamental uncertainty makes it too costly for banks to assess counterparty risk.
It is clear, however, that the more European governance extends into areas such as economic policies, the more we need strong democratic participation and accountability at the European level. There are fundamental distributional questions at stake with structural reforms that cannot simply be delegated to technocratic bodies.