2012.04.2606:54:00UTC+00Debt Crisis Affected Euro Area Financial Integration In 2011: ECB

The intensification of the euro area debt crisis hampered financial integration in the region last year and thereby significantly affected the transmission of the monetary policy, the European Central Bank said in a report published Thursday.

"The intensification of the sovereign bond crisis strongly affected the euro area financial system. As a result, the integration of markets has deteriorated further," the bank said in its annual report on financial integration in Europe.

"Since 2007, and particularly following the intensification of the European sovereign bond market crisis during 2011, the financial integration in Europe has slowed down considerably," it said.

"In this environment, the monetary transmission process of the euro area ceased to function properly," ECB said. Given the key role played by the banking sector in the financing of the euro area economy, the impairment of transmission through banks is of particular concern, it noted.

Nonetheless, a similar phenomenon has occurred also for market-based financing, the report added.

According to the report, the pass-through of changes in key policy interest rates to money market interest rates and the functioning of the bank lending channel were affected although this was in part mitigated by the Eurosystem's standard and non-standard monetary policy measures.

ECB said that the enhancements of the Single Market Program, the strengthening of the euro area policy framework regarding prudential supervision as well as macroeconomic and fiscal policies accompanied by policy actions at national level need to be brought forward.