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OECD Economic Surveys: Euro Area 2009

image of OECD Economic Surveys: Euro Area 2009

This edition of OECD's periodic survey of the Euro Area economy finds a slowing economy, receding inflationary pressures and financial market turmoil  The survey focuses of key challenges being faced including financial market stability, fiscal policy, and financial integration, innovation and the monetary policy transmission mechanism. An annex looks at wealth effects on household consumption.

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Financial market stability

Enhancing regulation and supervision

Financial innovation and integration have spurred financial development and enhanced consumer choice. Financial integration has also been associated with the emergence of large, complex, cross-border financial institutions (LCFIs). This has changed risk profiles and made cross-border contagion more likely. An important challenge for the EU is to manage systemic risks and cross-border contagion to ensure financial stability in an integrated financial market. The financial market turmoil has also highlighted some gaps in the regulatory and supervisory framework. Although the European authorities should be commended for the progress they have made in updating and improving frameworks and responding to the financial turmoil, more can be done. In particular, further steps are needed to remove the mismatch between integrating European financial markets on the one hand, and largely national supervision on the other. Attention should also be given to the question of which measures are adequate to dampen the pro-cyclicality of the financial system. New regulations should not impose unnecessary costs on consumers, businesses and financial institutions, nor create obstacles to further market integration.

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