FRANKFURT, April 25 Financial markets in the
euro zone improved in the second half of the last year, but they
remain fragile and any signs of banking union plans stalling
could send them back into a tailspin, the European Central Bank
said on Thursday.
European leaders agreed on plans to establish a banking
union and the European Central Bank unveiled a new bond-buying
plan in the middle of last year, which contributed to market
The banking union is one of the key projects to improve the
economy of the 17 countries sharing the euro. It would help
eliminate many of the problems that now hold back the flow of
credit needed to finance a euro zone economic recovery.
The German government, however, believes that the plans
might require a European Union treaty change, which is a lengthy
process, and the ECB warned against plans stalling.
"In spite of the improvements in market conditions since
then, the climate in the financial markets remains fragile," the
ECB said in its annual report on Financial Integration in
"Further progress towards the establishment of a single
supervisory mechanism, as well as other components of the
banking union, will be a critical factor underpinning financial
market performance this year."
The ECB also said that late last year, money markets also
improved, but banks are still more comfortable doing business
with other banks in their home countries.
"Indicators still show a 'home bias' with respect to
interbank counterparties and a continuing dependency of some
banks on the Eurosystem's liquidity support," the report said.
(Reporting by Sakari Suoninen)