Without a doubt, the least progress on integration of the European financial market has been seen in the retail markets. In a new report on European financial market integration, the economists at Allianz Group and Dresdner Bank therefore call for efforts to be focused on this area.
European Financial Market Integration: Further cross-border banking consolidation on the cards in Europe
At the national level banking market consolidation is now complete in the majority of European countries. The next logical step would be to shift activities onto the European stage. The growing share of fixed costs in the banking business opens up new possibilities for economies of scale which can be realized independently of national market peculiarities. The European banking market also needs to be girded against the American mega-banks, otherwise there is a danger that the development seen in investment banking will be replicated in European retail banking.
But there has also been some healthy progress on financial market integration. With the introduction of the euro, liquidity on the bond markets was increased dramatically at a single stroke. "'The convergence of government bond yields is a sure sign of growing integration", according to the report. On the international debt securities market some 47 % of all debt securities are currently denominated in euros. This is an increase of 20 percentage points since the launch of monetary union. The euro has also performed well as a reserve currency: at the end of 2003 close to 20 % of total global currency reserves were already held in euros, an increase on the year 2000 of some 3 1/2 percentage points. This trend is likely to continue.
Dr. Arne Holzhausen
Tel.: +49.69.2 63 – 5 55 30
E-Mail: arne.holzhausen@dresdner-bank.com