Elderson: Deeper integration key to European prosperity

ECB Executive Board Member Frank Elderson invoked the 85-year-old Ventotene manifesto, drawing parallels between Europe's historical fragmentation and its current challenges.

He noted that today's Europe grapples with weak growth, external dependencies in energy and technology, a harsher geopolitical environment, and accelerating climate crises.

Elderson argued that fragmentation remains the central issue impeding Europe's potential, creating disadvantages relative to global counterparts, and undermining its ability to control its future.

For the European Central Bank, fragmentation directly impacts monetary policy effectiveness, banking market efficiency, and overall competitiveness.

It prevents European businesses from scaling up, allocating resources efficiently, and expanding across borders.

Elderson emphasized that the most powerful way to address these interconnected challenges is through 'more Europe,' specifically by advancing the savings and investments union, deepening the Single Market, and enhancing integration to unleash full potential.

Elderson emphasized that a resilient banking sector, strengthened by sound regulation and effective supervision, is essential for Europe's real economy.

He noted that European banks are now better capitalised, more liquid, and more profitable, serving as a stability anchor during recent crises.

However, Elderson argued that Europe's primary banking challenge is fragmentation, not excessive regulation.

He pointed out that approximately 80 percent of bank lending remains confined to home countries, cross-border deposits are negligible, and merger activity has sharply declined.

This reflects a Single Market that is 'far from single' in services, forcing banks to navigate a patchwork of national legal frameworks.

This fragmentation prevents banks from diversifying risks, achieving economies of scale, and efficiently deploying capital at a European level, thereby hindering financing for large, cross-border projects and strategic investments.