Equally importantly, we now also have evidence that a large fraction of unsecured money market transactions can take place at negative rates without hampering market functioning. 2 Following the decisions of June and September 2014, the lower policy rates were transmitted smoothly throughout the money market. As expected, EONIA forwards curves flattened and shifted down, and the volatility of EONIA rates dropped.
This partly remedies the lack of a ‘federal’ shock absorber, while not altering the fundamental balance of competencies within the euro area, which would require fundamental Treaty changes. The capacity of these arrangements also ensures sufficient scope for support.