The European Union must see through “ambitious” plans to create a capital markets union (CMU) to jump-start “stalled” efforts at financial integration, the European Central Bank (ECB) has warned.
The ECB said that, while there had been “some years of reintegration” after the 2008 financial crisis, the aggregate price-based measure for integration was “volatile”, while the quantity-based measure had “flattened out”.
“These developments were the result of counterbalancing effects within and across different markets, partly influenced by different economic outlooks across countries, fluctuating global risk aversion and political uncertainty,” it said in a report released on Friday.
For the first time, the ECB’s report sought to analyse not just the level of financial integration within Europe but also its quality.
The bank said two new indicators within its report revealed that cross-country risk-sharing was “still low” and that private financial risk-sharing was “not contributing much” to integration.
“Therefore,” it said, “a large share of income shocks in member states directly passes through to consumption.”
The ECB said its findings highlighted the importance of completing the banking union and the CMU.
Vítor Constâncio, vice-president at the ECB, said the two projects should be seen as “mutually reinforcing initiatives” that could bring the single market for financial services to the “next level”.
The ECB also recommended the harmonisation of insolvency rules across the EU and the development of more pan-European banks to “foster risk-sharing” through retail credit markets.
“Further cross-border mergers and acquisitions,” it added, “could contribute to much-needed bank consolidation in some member countries without creating local competition problems.
“In addition, they could foster retail credit market integration that bolsters risk-sharing and make a valuable contribution to resolving non-performing loans.”