Euro zone countries are integrating faster with US than with each other, ECB says

ECB: Euro Zone Integrating with US Faster Than Within Its Own Borders

Euro Zone Integration Trends and Economic Vulnerabilities

Integration with the United States vs. Intra-Euro Zone Integration

DUBLIN, Nov 2 (Reuters) - Euro zone countries are integrating faster with the United States than with each other, European Central Bank Vice President Boris Vujcic said on Monday, arguing that the trend leaves the bloc more vulnerable to economic shocks at a time of rising geopolitical tensions.

The remark highlights a paradox at the heart of the European Union's long-running push to create a genuine single market for capital: European savings are increasingly flowing to the United States while national borders continue to fragment investment within the bloc.

ECB Research on Cross-Border Equity Investment

Citing ECB research, Vujcic said estimated barriers to cross-border equity investment between the euro zone and the United States have fallen by a quarter since 2014, more than twice as much as barriers within the euro area. 

"Strikingly, we are integrating faster with the United States than with each other," he said in a speech at a financial conference in Dublin. 

Implications of Fragmented Capital Markets

Resilience and Investment Patterns

Vujcic also pointed to evidence suggesting that Europe's fragmented capital markets make the economy less resilient.

Impact of Shareholder Base on Investment

ECB research shows that firms with mainly domestic shareholders cut investment about 20% more than peers with international investor bases during the COVID-19 shock. European companies also tend to scale back investment when oil prices rise, unlike US firms, he said.

"In a fragmented Europe, investment becomes the margin of adjustment whenever a shock hits," Vujcic said. "That is a resilience problem before it is a growth problem."

(Reporting by Graham Fahy; Writing by Francesco Canepa in Frankfurt; Editing by Hugh Lawson)