National governments have been acting as an impediment for integration of EU financial markets, acco...
National governments have been acting as an impediment for integration of EU financial markets, according to an OECD survey of the economy of the euro area.
The report noted there has been a push towards the integration of financial markets from the centre of the EU political system. Global developments, such as advances in IT, falling communication costs and standardisation of products, have continued this pressure.
However, the report concluded the current level of integration is unsatisfactory and further efforts are needed.
The survey showed money markets have integrated rapidly with the adoption of the euro and the establishment of a new cross-border payment system (Target), but cross-border problems remain where collateral is used due to international differences in collateral requirements.
Companies are moving from local bank lending to raising capital in securities markets, but the development of these markets has still some way to go.
Stock exchanges are integrating, enjoying economies of scale, but smaller, less efficient exchanges still survive and cross-border clearing and settlement remains costly. Mergers and acquisitions tend to be domestic rather than cross-border, creating highly concentrated local banking industries.
Mortgage markets are heterogeneous and domestically oriented and entry barriers in local insurance and pension markets are considerable.
Progress in adopting legislation in pursuit of an integrated financial market is accelerating, but the enforcement of legislation could still be strengthened.
This is particularly the case in view of the rapid changes in the international environment within which financial markets operate.
The report also showed the euro has appreciated in effective terms by 7% since April, which will dampen export growth and inflation, but will gradually strengthen domestic demand in the euro area.
In addition, the fall in the stock markets may have a small impact on household and corporate spending.
The report is the latest in a series of surveys approved by the OECD's Economic and Development Review Committee.
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