Towards financial integration in euro-area financial segments. Is there a convergence?

Powerful obstacles to the further integration of repo, bond and equity markets remain the still fragmented securities settlement industry in Europe, which charges much higher fees for cross-border transactions than for domestic transactions, and differences in legal systems. This paper investigates the main developments in the euro area financial markets before and after the introduction of the single currency. It looks at the evolution of the euro area financial structure in the last few years. Interestingly, in various dimensions the financial structure of euro-area countries seems to become more diverse over time. We assess the progress towards financial integration in the most important euro-area financial segments, namely money and equity markets, as well as banking. The available data suggest that the unsecured money market strongly integrated with the introduction of the euro, as the single currency and related euro-area-wide large-value payment systems link the different countries well. Also, some progress occurred in the integration of euro-area equity markets, as stock exchanges in a few countries merged to form Euronext and professional asset managers replaced country allocation by sector allocation strategies. Overall, while asset holdings have become more international in the euro area since the introduction of the single currency, securities markets are still much less integrated than in the US. In the area of retail banking the increased homogeneity of interest rates seems to be driven more by macroeconomic convergence than by market integration