However, the increasing fragmentation of capital markets which I described above, and which sometimes has led to a complete drying-up of certain financial market segments, has impaired the monetary transmission channel in the euro area. Monetary policy signals are no longer being transmitted properly to the real sector. The divergence in bank funding conditions is certainly a key factor, in addition to the country-specific economic situation, in explaining the differences in bank lending rates to non-financial corporations across euro area countries. These divergences are leading to a weakening of the pass-through of monetary policy decisions in some euro area countries. For example, among the five largest euro area countries, the maximum difference between short-term lending rates to non-financial corporations (for short-term loans over € million) reached more than 100 basis points in recent months. Across all euro area countries, the dispersion of such lending rates is greater now than it has ever been. In other words, conventional monetary policy has lost its effectiveness in some parts of the euro area. For the ECB, the singleness of its monetary policy has been at stake. Against this background, the ECB has resorted to so-called non-standard measures to ensure the effective transmission of its monetary policy across the euro area. Without a properly functioning transmission channel for its monetary policy, the ECB’s capability to maintain price stability is at risk. The ECB has modified its allotment procedures and its collateral policy. It has also lowered the rate of the minimum reserve requirements and introduced very longer-term refinancing operations.

The Maastricht Treaty, which was signed in 1992, made monetary policy a euro area competence but left economic and fiscal policies under the responsibility of national governments. The concept of economic union relied essentially on the single market, with few binding constraints on economic and fiscal policies. Over time, this turned out to be a significant institutional shortcoming. Moreover, the transfer of a core sovereign prerogative like monetary policy to the supranational level is a highly political act which entails important political commitments for the future. In particular, the participating countries must undertake to conduct fiscal and economic policies in a way that allows monetary union to work properly. This is a responsibility that the euro area countries share, a responsibility that governments have to fulfil vis-à-vis their peers and vis-à-vis their own citizens. Seen from this perspective, it is clear that the concept of EMU goes beyond economic and monetary integration. Let me add that the single market itself has a political dimension as the proper functioning of markets requires strong institutional underpinnings, such as enforcement of contracts, consumer protection and competition policy. It has mandated the creation of a federal executive (the European Commission), legislative (the European  1  In the late 1970s, European countries agreed on closer exchange rate cooperation by setting standard fluctuation bands of plus/minus 2.25% for their bilateral exchange rates.