EU Financial Integration: Constraints and Alternatives

Abstract

The rapid growth of European financial markets is embedded in an environment of declining growth and continuous redistribution of income in favour of profits which are not re-invested into the productive cycle but channelled onto the financial markets. The main driving forces therefore shift from organising finance for productive investment to creating opportunities for financial investment. Monetary and financial market policies of the European Union (EU) are facilitating this development through (1) the privatisation of financial institutions and increasing parts of the public social security systems, (2) the introduction of the Euro and the set-up of the euro-zone and (3) by creating a single European market for financial services with the main aim of reducing the costs and increasing the speed for cross-border financial transactions. Since the late 1990s, financial integration has become central to the EU policy agenda, as set out by the Lisbon Strategy 2000-2010. A new regulatory framework mainly pertaining to the capital and money markets has been set up, while the main emphasis centres at present on the removal of obstacles to merger and acquisitions in banking and in the asset management area.

EU financial integration policy caters mainly for efficiency. The few safeguards for stability and for consumer protection are insufficient and there is no perspective for workers protection against the consequences of capital market driven mergers and acquisitions. These are the aspects on which a progressive financial market policy should concentrate most. In particular, the creation of an integrated European financial market should be embedded in a social and economic environment in which financial stability, economic efficiency and social inclusion are the guiding principles. To ensure financial stability the mission of the ESCB must be broadened, the Basle 2 framework should be changed, special measures against excessive financial speculation should be taken and tight cooperation amongst financial supervisors in the EU is necessary. Economic efficiency in financial markets can be enhanced when distortions caused by different tax systems and tax competition are removed and special financial instruments for the implementation of public development objectives are retained. In the area of social inclusion proposals for the guarantee of universal access to the financial system, for high minimum standards of consumer protection and for the inclusion of workers’ interests into the framework of a European financial market are formulated.