A second important factor is related to the effect of EMU on the business cycle of Member States, the consequent impact on asset returns and, as a result, on portfolio diversification by international investors. A third crucial factor, which could have influenced the reallocation of portfolio holdings, is the catalyst effect of the single currency arising from the reduction/elimination of cross-border barriers, which enhanced financial integration particularly among the Member States. In order to assess whether EMU did play a role in the reallocation of portfolio holdings worldwide and on financial integration, we can look at countries’ home bias measures as well as the cross-border investment in euro area portfolio assets. While home bias for the euro area as a whole – treated as one economic entity – has decreased somewhat, particularly in the fixed income markets, in some cases it has declined enormously for individual euro area Member States (see Charts 3-4). In Italy, for instance, the value of debt instruments held by residents is much lower than in 1997, when the majority of these instruments were issued domestically thanks also to the relatively higher level of interest rates that prevailed before EMU (see Chart 4). The decrease in home bias among individual Member States has been more pronounced for debt instrument holdings than equity holdings. This implies that euro area investors have reallocated their portfolio holdings within the euro area, as a consequence of the establishment of EMU. Chart 3. Home bias in the equity market among Chart 4.

For example, it will be easier to reduce the amount of NPLs if there is a reduction in the backlog of cases related to the household insolvency framework (the so-called Katseli law) that are still pending before the courts. In June the government presented an ambitious action plan that will be closely monitored in the context of the enhanced surveillance framework. Are you satisfied with the pace of e-auctions? A comprehensive approach involving all stakeholders must remain in place at all times to ensure that the e-auction system continues to be successful. We have seen a clear improvement here in recent months, but further progress in raising the number of auctions is needed, especially for properties located outside Attica. So we will continue to monitor the situation closely, in cooperation with the authorities. It is also important to recognise that e-auctions have incentivised borrowers (including strategic defaulters) and banks to work towards a mutually beneficial solution. There are indications of increased restructurings and settlements of loans now that eauctions have started. The ECB lifted the waiver for Greek government bonds. Wasn’t the enhanced surveillance sufficient to keep it? How much liquidity did banks have to get from ELA as a result of lifting the waiver? The minimum credit rating rule for ECB collateral eligibility pre-dates the Greek crisis. In 2010, we acknowledged that the rule could be procyclical and granted a waiver to countries under an EU/IMF programme, because policy conditionality and access to comprehensive information gave us confidence about the sovereign’s creditworthiness.