For instance, what was first a European Assembly with only consultative powers has now become a European Parliament with legislative responsibilities extended to more and more areas, and members of parliament who are directly elected by European citizens. Within the Council of Ministers, majority voting has increasingly become the norm at the expense of unanimity. Finally, in addition to institutional reform, economic integration has also served to foster progress in areas beyond the economic sphere. In order to effectively guarantee the four freedoms, it has, for example, been deemed necessary to grant powers to the EU in fields such as immigration and human rights. Ladies and gentlemen, as a consequence of the integration process that began largely in the economic sphere, the EU already exhibits a number of features of existing political unions in terms of both its institutional structure and its competencies. However, it is clearly not a complete political union. The extent to which further integration is either desirable or necessary is an ongoing debate. It is a debate that is ultimately for politicians, not for central bankers. Nevertheless, the process of European integration will undoubtedly also have implications for the conduct of the single monetary policy. No central bank operates in a vacuum. It needs to be supported by an appropriate underlying framework. There is no doubt that the overall performance of the euro area economy depends not just on economic, but also on institutional and political structures.
Also, insufficient financial sector policy reaction on the side of governments exacerbated the detrimental dynamics and represented itself as a source of risk and uncertainty during the crisis, ultimately fostering dynamics of self-fulfilling prophecies. The ECB’s non-standard measures In this environment the ECB took bold and decisive action. The disruptions in banks’ short-term funding led to a strong tightening of credit standards to both businesses and households. This threatened to undermine bank lending to the real economy with risks of a severe credit crunch. In turn, the transmission of monetary policy became seriously impaired. And, central banks were less effective in steering term money market rates via the setting of their policy rates. Ultimately, the interest rate set by the central bank did no longer reach the real economy across the euro area in the same way. The size of the shocks and the extent of global and intra euro area adjustments required exploiting the ECB’s full toolkit to implement a wide range of non-standard measures. Here, we always had to keep in mind the importance of the banking system for the financing of the economy. In the euro area, two-thirds of external financing – and even a larger share for small- and medium-sized enterprises – originates from banks. Our measures included the provision of unlimited funding support to banks at maturities up to three years, the extension  6  The Japanese experience since the 1990s was widely seen as an exception.