I am doubtful whether a further easing of monetary policy in this group of countries would be able to help move the yield curve in the desired direction. It could actually have the opposite effect - if investors perceived it as heralding a weak euro. In any event, given the current level of short-term interest rates, monetary policy’s margin for manoeuvre is extremely limited. It is possible that the level of real long-term interest rates in Europe reflects, partially at least, that of real interest rates worldwide. Europe has no influence over that effect. BIS Review 67/1997  -3-  Europe can, however, have an influence on the effect which comes from the constant increase in public sector indebtedness in our countries. As a reminder, between the end of 1991 and the end of 1996 the general government debt rose from around 56 to above 73% of GDP for the European Union as a whole. This development, together with the worry that it might not yet have run its course, are not likely - to say the least - to lead to a fall in real interest rates. Nor do they create the climate of confidence necessary for consumers and investors to modify their current prudent behaviour. On the other hand, the certainty that governments are tackling the underlying causes of the public deficits which are responsible for the constant increase in the debt burden could well bring about such a change in behaviour.
The situation would be even more critical if the bank was at the same time a relatively small actor in its own country. In this type of situation the supervisory authority in the home country – which in this case is the one that decides – would probably consider that the need for supervision was not as great as the other countries might consider it to be. There is an evident risk of a conflict of interests between the countries. 2  BIS Review 38/2007  There are elements of similar problems in the Nordea case, too. However, here the problem is rather the opposite – namely that the bank group’s different companies (parent and subsidiaries) would be covered by supervision in several countries. The fact that each cross-border bank group has to obey and report to several supervisory authorities leads to additional costs and administrative duties for the bank. This is an obstacle to continued integration and to the competitiveness of the European bank market. Another problem is that there are no common arrangements for crisis management within the EU. Basically the only EC regulations defining how responsibility should be divided between the countries in the event of a cross-border crisis are regulations for compensating depositors in the case of bank failures. However, these regulations are not primarily intended to ensure efficient crisis management. They should rather be seen as protection for consumers.