IMF-Bruegel Statement at the Conclusion of the Joint Conference on "Putting Europe's Money to Work: Financial Integration, Financial Development and Growth in the European Union"Press Release No. 07/29
February 22, 2007
The International Monetary Fund (IMF) and Brussels-based think tank Bruegel concluded today a two-day conference on "Putting Europe's Money to Work: Financial Integration, Financial Development and Growth in the European Union," which took stock of progress toward a more integrated European financial system eight years after the EU's launch of its Financial Services Action Plan (EU FSAP) and explored policy options to accelerate financial integration.
This first-ever joint IMF-Bruegel conference in Brussels was designed to bring together researchers, policymakers, and practitioners from Europe and around the globe to discuss and review the current state of Europe's financial integration, its financial players, and the political economy of financial sector reform. The conference discussed ways to safeguard financial stability in an integrating market, and explored how integration promotes growth through more efficient allocation of capital.
There was broad agreement among participants on the following points:
Financial integration policies have been a success
• Integration policies have positioned Europe at the forefront in developing a model for regional financial integration and stability that could be emulated in other parts of the world. The rapid financial integration of the new member states testifies to Europe's success. The implementation of the EU FSAP is well advanced and its benefits will build significantly over time.
Integration benefits need to spread further
• Accelerated integration will deliver sizable benefits to Europe's 493 million citizens. Financial integration and development foster innovation, job creation, and higher living standards—by some measures, almost ½ percentage point of the gap between euro area and US productivity growth during 1996-2003 can be traced back directly to parts of the financial sector. Thanks to integration policies, this gap should diminish over time but further efforts will be needed.
• Financial integration has made a major difference for large companies and now needs to reach Europe's many small and medium-sized enterprises to support innovation and growth.
• Further capital market integration and development would benefit Europe's households and add to the role of banks in supporting Europe's companies in the global market place. This will require more convergence in national civil laws, consumer protection, and tax codes. On a practical level, clearing and settlement systems need to become more integrated.
A reformed financial stability framework is needed
• Europe's financial stability framework must keep pace with the changing nature of financial risks, including those related to credit derivatives, hedge funds, and rapid credit growth in several old and many new member states. It must also address countries' concerns over losing control over national financial stability because these concerns slow integration, including cross-border M&A.
• There are gaps and overlaps in Europe's financial stability arrangements. For example, more than 80 agencies are involved in supervising or regulating Europe's financial markets but none has a deep knowledge over what is going on in all of Europe's dozen or so largest financial institutions at any point in time. The large number of supervisors raises the compliance costs for intermediaries.
• More European joint action and responsibility for integration and supervision is crucial. The EU FSAP and the Lamfalussy process need to deliver a single set of best prudential policies and practices rather than a collection of national policies and practices. Also, there needs to be convergence in deposit insurance arrangements, in corrective procedures that apply to banks facing difficulties, in crisis resolution principles and procedures, and in supervision of large cross-border banking groups. More routine and centralized sharing of supervisory information between national supervisors is key.
These items will be reflected in ongoing work at the IMF and Bruegel on European integration and in a joint Policy Brief that will draw on the exchanges at the conference.