And integrated credit markets allow firms and households to smooth any negative effects on income by bringing forward future consumption – which in the euro area essentially means borrowing from countries that are less affected. In other words, financial union is an integral part of monetary union. The US provides an example of how effective private risk-sharing can be in a monetary union.
A well-known study found that around two-thirds of economic shocks are absorbed via integrated financial markets in the US. By contrast, studies on the euro area suggest that credit and capital markets are much less effective in smoothing income.