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The following OECD assessment and recommendations summarise chapter 3 of the Economic survey of the European Union published on 20 September 2007.
The euro and the Financial Services Action Plan have contributed to greater integration of financial markets. Indeed, Europe has overtaken the United States in some segments of global markets. Capital flows are largely unimpeded and most wholesale markets are well integrated. There has been less progress at the retail level. Retail banking – and mortgage markets especially – are mainly national. Cross-border mergers of financial institutions can be complex due to government guarantees, ownership arrangements, tax issues and resistance by supervisors, although the Commission has improved the rules in this area by limiting supervisors’ discretion. Approval for selling products across borders can be lengthy because they must be tailor-made to cater for national laws on investor and customer protection. In mortgage markets, one option would be to go for full mutual recognition (which implies that the judicial process of the lender’s country would apply) since well-informed customers should be able to decide which product is best for them. However, since consumer safeguards are highly valued in some countries, another way forward may be harmonisation of the most important protections and mutual recognition for the rest. Fragmented payments infrastructure has also been holding back a pan-European banking market, and the industry will need to work quickly to ensure that the Singe Euro Payments Area (SEPA) is up and running on time in 2010. In this respect, the recent agreement by Council and the Parliament on the legal underpinnings of SEPA will help.
Financial market indicators
Per cent of GDP2 2006
1. EU22 (excluding Czech Republic, Portugal and Slovak Republic) for panels A, B, D and EU15 for panel C; euro area-10 (excluding Finland Portugal) for panels A, B, D.
2. Except for share trading which is in per cent of equity market capitalisation.
Source: World Federation of Exchanges, Focus, January 2007; BIS, Quarterly Review, December 2006; IMF, World Economic Outlook, September 2006.
Stronger corporate finance markets would help European companies
Enhanced corporate finance markets would give European firms greater access to capital. By one estimate, a fully integrated financial market could lower the cost of capital by 50 basis points. The MiFID directive, which creates an EU passport for securities, should be a major step towards integrated securities markets, but member states should not unravel the benefits of harmonised rules by adding on their own provisions. The revamp of investment fund regulations that is underway should also improve corporate finance. European funds are small because it is difficult and costly to offer products and merge funds across borders. The Community should opt for full mutual recognition of investment funds, with a simplification of notifications, and eliminate restrictions on the types of assets that can be included, create a framework for cross-border mergers and revise the simplified prospectus. Lastly, member states should reassess the way they have implemented the takeover directive because they have produced a more restricted market for corporate control that hampers the further integration of capital markets.
Listed companies with a blocking minority of at least 25 per cent
Source: M. Goergen, M. Martynova and L. Renneboog (2005),”Corporate Governance Convergence: Evidence from Takeover Regulation Reforms in Europe”, Oxford Review of Economic Policy, Vol. 21, No. 2.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.The complete edition of the Economic survey of the EU 2007 is available from:
For further information please contact the EU Desk at the OECD Economics Department at firstname.lastname@example.org. The OECD Secretariat's report was prepared by David Rae, Boris Cournède and Marte Sollie under the supervision of Peter Hoeller.