Even in the jurisdictions where capital markets are the most developed-and here I refer of course to the United States-banks exert an influence that extends far beyond their relative share of financial sector assets. It differed from the Greek case, where the contagion was from sovereign to banks. Under the terms of reference, each included a section on the macroeconomic and macro-financial context, and a separate section on monitoring of the financial sector, which according to Spanish and European interviewees had much more influence. Bonds outstanding could not be fully bailed-in because of several legal constraints, including that the banks had been made technically solvent by the government following their nationalisation in 2009, and that some of the debt was in the form of covered bonds. Ten years later, interest rates remain low in most countries. I will focus primarily on the first aspect of this topic.
The global imbalances accumulated in the 1990s could trigger a swift shift in momentum when a turning point is reached. It was the first public authority to articulate a clear vision of banking union as an essential policy response, building on its longstanding and pioneering support of banking policy integration in the European Union. From February 2002 to April of this year, the real effective exchange rate for Greece had appreciated by 15 percent relative to that for Germany. Other shortcomings, partly also linked to the dominance of fiscal and macroeconomic analytical frameworks, included an occasional underestimation of issues of measurement, accounting and disclosure, and a chronic downplaying of issues of bank governance, related-party lending and management integrity in financial sector analysis. This would jolt lending, boost demand, and stimulate the economy.
In a fundamental sense, the procedural principle transcends in importance the specifics of the case, and it should continue to be evenly applied so that policies are pursued consistently and coherently to strengthen the monetary union. Third, the Fund carries out its mission through its surveillance, policy advice, and lending programs. The impact of the change in the external environment is likely to be moderate mainly because of the relatively closed structure of the euro area economy and the scope for corrective policy action in the United States. The most pronounced case analysed here was the decision not to use an external evaluator for the assessment and triage of banks in Portugal. From the long - and well known - unfinished agenda, two items stand out as requiring priority attention.
The proposal is for a central bank to divide the monetary base into two separate local currencies—cash and electronic money e-money. If the euro's decline continues substantially further, it would undermine the process of global rebalancing that should be underway. A lending boom resulted in excessive growth along with an appreciating exchange rate and widening current account deficit. The second view stresses instead the danger that the upward creep in underlying inflation may catalyze in time a flare up in wage claims, and sees a potential for rising unit labor costs. In the end, Ireland benefited from the promissory notes transaction and thus cannot be viewed as having been treated unfairly. This will require Congressional approval unless the United States opts out of an increase in its quota, which, I expect, will not be the case.
So the path to borderless banking, I would say, rests also on steps to achieve a better bank exit framework. In the long run, total factor productivity is by far the most important driver of economic growth. The financial sector situation deteriorated in the course of 2011. If you instead took out 100 cash-dollars today and kept it safe at home for a year, exchanging it into e-money after that year would also yield 97 e-dollars. To be frank, I will not argue that such a backstop will be an immediate game-changer for bank resolution. I will not claim to be an expert on how this came to be.
But the question is whether this is sufficient, whether this addresses the main issue, which is to have a good picture of the financial position of banks, of individual financial institutions. Doubtful accounting and consolidation practices by some banks were left unchanged. Ideally, the backstop should be large and automatic, allowing the Single Resolution Board to draw on it at short notice and without condition. In the real world, there are no neat dividing lines between banking and the capital markets. Yet others may provide depositary services to mutual funds and pension funds or prime brokerage support to hedge funds. These auspicious internal dynamics seem set to continue: confidence indicators suggest that private consumption and investment growth remains on a steady path. The question put to me is how much more deepening of the economic and monetary union is needed.
I could go on, but I think my point is made. The major policy instrument available to the United States to contain the European crisis aftermath is the International Monetary Fund. Register a Free 1 month Trial Account. Crucially, unlike in Ireland and in earlier assistance programmes to emerging economies, the programme did not include a system-wide external review of the asset quality of Portuguese banks. In banking, the task is to further strengthen supervision and resolution. Now we understand, of course, that Europe is not a political union, and agreeing architectural change is a complex business.
And that, in turn, will reduce the need for individual countries to protect themselves with ring-fencing measures that also act as barriers to cross-border flows-I believe there can be a virtuous circle between less fragmentation and more trust. Pros and cons While a dual currency system challenges our preconceptions about money, countries could implement the idea with relatively small changes to central bank operating frameworks. On the positive side, programme conditions related to the financial sector were broadly met, and no major disorderly developments occurred in the Greek financial sector in spite of the highly challenging environment. Where once taxpayer bail-outs were commonplace, today there is a growing insistence that bail-in needs to happen, that private stakeholders must be made to pay the price for risk-taking gone bad. Its reports are rightly being seen as essential reading for those involved in further upgrading bank resolution in Europe. Corporate clients also increasingly withdrew deposits.
However, the global environment is shifting - from being supportive of euro area growth but risky to price stability in 2000, to the reverse on both counts in 2001. This, of course, is an extremely broad area, spanning everything from financial market infrastructure to securities underwriting to insurance, with much in between. It is a pleasure to be here. It acts as an additional impediment to cross-border mergers and acquisitions. Savings banks could sell assets but could not issue equity capital or be acquired by third parties other than other savings banks.