Euro area imbalances My second example which supports the case for greater co-operation is the lessons that emerge from the build-up of structural imbalances in the euro area before the crisis. A corollary of monetary integration is the elimination of exchange rate risk, which reduces transaction costs and increases the elasticity of substitution between financial assets issued by member states of the monetary union.
In the euro area, financial linkages were greatly facilitated by the introduction of the single currency. A distinct feature of these linkages was the build-up of current account imbalances. Deficits accumulated in the periphery were mirrored by a build-up of surpluses in core countries.