Baldwin attributes the severe and synchronous slump in goods exports to two main factors: first, the uncertainty that was triggered simultaneously around the world by the collapse of Lehman Brothers; second, the strong internationalisation of the value chain. The former led to a concurrent drop in demand, particularly for consumer durables, while the latter resulted in the goods trade volume reacting disproportionately to changes in production. This is because a product can cross national borders several times during the manufacturing process. Demand for services remained relatively robust, however, with the exception of financial services. Cf. also Ingo Borchert and Aaditya Mattoo (2010): Services trade – the collapse that wasn’t. BIS Review 157/2010  1  more, the recovery observed since mid-last year has been comparatively brisk. As a result, by mid-2010, Swiss goods exports had recouped almost two-thirds of the losses suffered. The Swiss National Bank’s decisive action undoubtedly contributed to the fact that the Swiss economy as a whole emerged from the crisis relatively unscathed. The SNB didn’t hesitate to lower interest rates decisively and – like other central banks – to employ unconventional monetary policy measures when required by the legal mandate, once the room for manoeuvre using the traditional interest rate instrument had been exhausted. In particular, we created additional liquidity through the purchase of foreign currency. In doing so, we resisted extreme exchange rate developments that could have initiated a deflationary dynamic and would have had devastating consequences for the Swiss economy.

As a result, country-specific factors have become less important in determining corporate bond prices and spreads. Cross-border holdings of long-term debt securities of monetary financial institutions grew from about 15% in 1999 to nearly 40% in 2007. Integration in the equity markets is less advanced but shows signs of improvement. Between 1997 and 2006, euro area investors doubled their holdings of equity issued in other euro area countries to 29% of their total portfolio of euro area equity assets. The retail banking segment has remained more fragmented. In particular, the euro area cross-country dispersion of bank interest rates, especially of interest rates on consumer loans, has remained relatively high. This reflects different conditions in national economies (e.g. credit and interest rate risk, size of firms, industrial structure and degree of capital market development), institutional factors (e.g. taxation, regulation, supervision and  2  BIS Review 20/2009  consumer protection) and financial structures (e.g. degree of bank/capital market financing and competitiveness). It was probably overoptimistic to expect a faster convergence in this segment. The creation of the euro also gave rise to expectations of a broad based convergence of underlying economic developments. These expectations were quite varied, in fact. Some people expected greater divergence as a consequence of specialisation. Others expected greater convergence. The result is mixed. Some convergence has been observed, in particular in terms of business cycle and dispersion across countries, which is comparable with that among the US states.