Mr Philipponnat discussed the transmission mechanism between macroeconomic imbalances and financial markets in the euro-area, the inability of euro-area countries to create their own money, the impact of LTRO on the relationship between banks and sovereigns, and the consequences for interest rate divergence and cross-border lending.
“As long as the euro area does not have a risk free rate on which to base its financial system and as long as it accepts to be built on moral hazard, the ingredients of the next financial crisis and of its financial disintegration will remain, regardless of the ups and downs of fiscal discipline and of balance of payment equilibrium”, said Mr Philipponnat.
