The Competitiveness of European Financial Markets: An Economic Framework for Effective Policy-Making
Tumpel-Gugerell, Gertrude, Business Economics
The countries that together make up the euro area are undergoing a process of far-reaching change, with established national financial markets merging into one new European market accompanied by deregulation, cross-border consolidation, and increased competition within the euro area. These developments will help to increase long-term economic growth and will have a strong bearing on the international competitiveness of the European financial sector, leading to innovation and modernisation. This paper presents the underlying rationale of financial integration and increased competitiveness of European financial markets and provides a snapshot of where financial integration has been successful and where work is ongoing. It also notes important historical experiences of U.S. financial integration. It concludes by highlighting the role and recent activities of the European Central Bank and the Eurosystem in promoting and enhancing further financial integration.
It is clear that a framework for effective policy-making across a wide spectrum of areas is, indeed, key in enabling us to cope with the continuous and far-reaching changes in world economies. My focus will be on the competitiveness and integration of European financial markets. I would like to add a European dimension to the debate on effective policy-making and provide insight into recent developments in Europe.
Allow me to start with a quote from Mark Twain. Having visited Europe in the late 19th century, he noted: "An Englishman is a person who does things because they have been done before. An American is a person who does things because they haven't been done before." Replace "an Englishman" with "a European" and you will capture, in my view, how Europe's attitude towards financial sector innovation and modernisation is sometimes still perceived by the outside world.
I would like to refute this (mis)perception. The European Union (EU), and more specifically the countries that together make up the euro area, is currently undergoing a process of far-reaching change: established national financial markets are merging into one new European market. This financial integration will help to increase long-term economic growth and will have a strong bearing on the competitiveness of the European financial sector leading to innovation and modernisation. I strongly believe that, without deregulation, cross-border consolidation, and an opening-up of markets, it would not be possible to create a favourable, integrated, and competitive European economic and financial environment.
I am glad that I can make this plea for Europe here at the NABE conference in Washington, D.C., because it is often forgotten--when comparing American and European financial markets--that it actually took the United States more than 200 years to become the integrated financial market that we take for granted today. At the same time, the U.S. experience illustrates the very positive effect that the abolishment of geographical and sectoral restrictions may have. As a direct consequence of lifting barriers to nationwide financial integration in the 1970s and 1980s, the United States experienced substantial gains in efficiency, employment, and economic growth.
In Europe, we share and pursue the objective of establishing an integrated, efficient, and stable financial market, even though, given the differences in the allocation of political responsibilities, the instruments and dynamics to achieve this goal may differ from those used by the United States.
My reflections in this paper are organised along five lines. First, I will stress the underlying rationale of financial integration and development for the competitiveness of European financial markets. Second, I will provide a snapshot of the areas of the financial sector in which European integration has proved to be successful and indicate those areas in which work is still ongoing. …