monetary policy throughout the euro area. financial integration also helps financial systems to channel funds from those economic agents that have a surplus of savings to those with a shortage ; in particular, it enables agents to effectively trade, hedge, diversify and pool risks. as a result, there is a better sharing and diversification of risk. according to academic research, in the united states, over the period 1963 - 90, capital markets smoothed out 39 % of the shocks to gross state product ( the equivalent to gdp ), the credit channel smoothed out 23 % and the federal government, through the fiscal channel, 13 %. 5 around 25 % of the shocks were not smoothed out. hence financial markets and financial institutions contributed 62 % to the absorption of idiosyncratic state shocks. we therefore see from the us example that the financial channel can be much more important than the fiscal channel. this is an additional reason for speeding up financial integration in europe. in a more recent study, it was found that the situation in the euro area countries has begun to converge towards that of the united states as inter - euro area country capital flows increase. it was found that in what would become the euro area countries ( excluding luxembourg ), capital markets would have smoothed out about 10 % of the country - specific shocks to gdp between 1993 and 2000. 6 a set of indicators, published by the ecb, points to an increasing degree of integration of euro area financial and banking markets since 1999. 7 moreover, the size of capital markets – in terms of the ratio of the total value of stock, bond and loan markets to gdp – has increased substantially since 1999, and has the potential to grow even further, as seen from a comparison with the united states. in the period 1995 - 99, it was 177 % of gdp in the euro area and 279 % in the united states ; in 2005 - 06 it had increased to 256 % in the euro area, and 353 % of gdp in the united states. in germany this ratio rose from 202 % to 229 % of gdp. integration in retail banking, by contrast, has been slow so far. there are still significant differences in bank deposit and lending interest rates across euro area countries. in the euro area, the cross - country dispersion is higher than the intra - regional dispersion of the same rates in the united states. 8 this notwithstanding, overall there is evidence of growing economic and financial integration among the countries of the european union. the adoption of the euro

has contributed to this development by reducing information costs, enhancing price transparency and eliminating exchange rate risk between countries in the euro area. nonetheless, in some fields, a lot a research study conducted by london economics estimated the benefits of the integration of european bonds and equity markets to be around 1 % of additional gdp over a ten - year period. london economics, 2002, “ quantification of the macroeconomic impact of integration of eu financial markets ”, report to the european commission. see also “ eu productivity and competitiveness : an industry perspective. can europe resume the catching - up process? ” by mary o ’ mahony and bart van ark, european communities, 2003, for a comparison of the financial sector contribution to annual labour productivity growth in the united states and the euro area. see p. asdrubali, b. sørensen and o. yosha, 1996, “ channels of interstate risk sharing : united states 19631990 ”, quarterly journal of economics vol. 111. see s. kalemli - ozcan, b. sørensen and o. yosha, 2004, “ asymmetric shocks and risk sharing in a monetary union : updated evidence and policy implications for europe ”, cepr discussion paper no. 4463. “ financial integration in europe ”, ecb, 2007. c. kok - sørensen and t. werner, 2006, “ bank interest rate pass - through in the euro area ; a cross - country comparison ”, ecb working paper no. 580. remains to be done, for example, that of increasing intra - euro area labour mobility and financial integration in retail banking. 3. adjustment processes in the euro area economic and financial integration are prerequisites for the smooth functioning of the euro area. in a monetary union like the euro area, where regional monetary and exchange rate policies are no longer available options, it is important to ensure that market adjustment mechanisms function properly. such mechanisms are needed in order to prevent a country or region, after experiencing a country - specific shock, from entering into a period of protracted low growth and higher unemployment, or into a long period of overheating. there are many factors that can improve the resilience of the euro area economies to adverse shocks. in this context, the ecb ’ s monetary policy contributes to the proper functioning of adjustment mechanisms within the euro area by ensuring price stability, by being credible in ensuring price stability and therefore by anchoring