Financial integration crucial for Europe's prosperity
ECB Vice-President Luis de Guindos emphasized the strategic necessity of deepening financial integration in Europe. Speaking at a joint conference in Frankfurt, he outlined reforms to foster resilience and global competitiveness.
Progress and persistent barriers
Financial integration in the euro area has advanced significantly, with ECB indicators showing levels above the average since the Economic and Monetary Union's creation.
This progress reflects lower dispersion in asset price and yield differentials across markets, alongside increased capital allocation and portfolio diversification, driven notably by cross-border debt activity.
However, the full potential remains untapped.
Cross-border corporate lending accounts for only 14 percent of the total, and equity market integration has declined since 2022.
Foreign direct investment within the euro area has also fallen to a historical low, highlighting structural barriers.
These contrasting trends underscore the need for targeted policy interventions, particularly in equity markets, which are crucial for innovation and entrepreneurship.
De Guindos stressed that 'capital follows the real economy,' necessitating coordinated EU policy initiatives, Single Market reforms, and the savings and investments union to build a resilient financial ecosystem.
Unlocking capital and banking union
De Guindos highlighted the market integration and supervision package as a key opportunity to deepen capital markets.
This package proposes a genuine single rulebook, support for a tokenised financial ecosystem via the DLT pilot regime, and a more European supervisory framework.
These measures are crucial for mobilising investment and boosting the EU's competitiveness.
For the banking sector, he stressed that competitiveness and resilience require simplifying processes and fostering integration.
Completing a truly single banking market, with free capital and liquidity movement and equally protected deposits, is essential.
The finalisation of a fully-fledged European Deposit Insurance Scheme (EDIS) is a pivotal step.
A unified regulatory vision
Europe's fragmented regulatory landscape significantly impedes financial sector resilience and competitiveness, limiting its capacity to finance the real economy.
Bridging the regulatory gap between banks and non-banks, alongside harmonising non-prudential barriers, is crucial for unlocking integration's full benefits.
A truly unified and simplified framework is essential for Europe to assert its position as a global financial centre.