The Implications Of Economic And Monetary Union In Sustaining European Money Market Integration
The first ten years of the Economic and Monetary Union have generated a remarkable increase in financial integration, even if the extent of convergence varies across different sectors within the overall European financial system. The scope of this article is to illustrate the general issues relevant for understanding European financial integration by focusing on the money market. The link between the money market and the framework for implementing the single monetary policy makes it the natural starting point when trying to point out the impact of the introduction of the common currency on European financial market integration. Among the various segments of the euro money market, the inter-bank unsecured deposit market has achieved the highest degree of integration and, since the start of Stage Three of EMU, has performed an important role in ensuring the smooth redistribution of liquidity among euro area credit institutions irrespective of their geographical location. The 2007/2008 turmoil has led to increased segmentation in the euro area money market. The assessment of the state of financial integration for the last period is made very difficult by the effects of the financial dislocations on rates and spreads across the different instruments and maturities of the money market. However, the integration and standardization of the money market are not yet complete, and further evolution can be expected.
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