It includes 42 new or amended directives which have a bearing on the financial sector. Disappearing exchange rate risks … It is easy to conclude that there has been a dramatic decline in interest rate spreads between the countries that have introduced the euro, in the region of from around 5 down to 0.3 percentage points for government bonds. Some of this decline is, of course, connected with the consolidation of government finances in the EU member states, but as long as the national currencies remained, investors often also demanded a premium for managing exchange rate risk. The remaining interest rate spread can be largely explained by different credit ratings of member states in the euro area, which are carrying different baggage weights from debt previously incurred, as well as by differences in liquidity between different bond issues. The introduction of the euro has also contributed to increasing the breadth and depth of European capital markets and in any case led to almost complete integration of the part of the money market trading that is closely connected with the Eurosystem’s monetary policy transactions. To be sure, it is the quintessence of a common monetary policy that there should be uniform interest rate conditions for the liquidity supply across the entire monetary union. This has also led to an integration of deposit markets, i.e. short-term financing without formal collateral.
Here, it is also necessary to have an interplay between the central banks and supervisory authorities to implement existing regulations in a good manner. And the more integrated the financial sector becomes within the EU, the larger the number of people who will potentially be affected by such tensions or crises, which will make further demands for well-oiled channels for monitoring between different countries and concerning different types of financial activities. This involves not merely having good systems for mutually providing information on what is happening when things are going smoothly, but also maintaining a readiness to identify problems and intervene in acute crises that might arise and that could threaten the stability of the system. It is complicated to build up this kind of readiness when it comes to authorities in different countries with different traditions, different principals, responsibility for different parts of the financial system, etc., but it is nevertheless extremely important that the network co-operation in this field be developed further. New requirements for co-ordination in supervision and oversight The basic model for financial supervision within the EU is that it shall be carried out by national authorities and this is, in my opinion, the most natural and efficient means of keeping a watch over financial operators and markets. However, this requires that the supervision of other operations and markets that can affect financial conglomerates is also sufficiently co-ordinated.