Euro Zone’s Stock Markets Fail to Integrate Despite Financial Progress: ECB
ECB Report Highlights Fragmentation in Euro Zone Equity Markets
FRANKFURT, May 7 (Reuters) - Euro zone financial integration has made steady progress in the past few years but the region's equity markets remain stubbornly fragmented, lagging behind advances in debt and banking, the European Central Bank said in a report on Thursday.
The ECB and the European Commission are pushing to deepen integration and build a single market, starting with financial services, hoping it will channel more savings into investment and ultimately lift growth.
Progress in Financial Integration
Indicators of financial inter-connectedness, such as cross-border lending, bond holdings and market spreads, have risen above long-term averages since 2022, supported by upbeat sentiment, the ECB said in a biennial report.
Advances in Bonds and Banking
Broad improvements spanned across bonds, banking and some capital market segments, the report showed. Equity market integration, however, has deteriorated over the same period, with cross-border investment within the bloc falling to historically low levels.
Structural Barriers to Equity Market Integration
"Empirical evidence points to a set of interrelated structural blockages that continue to limit the effectiveness of European capital markets in supporting innovation and long-term growth," the ECB said in the report.
Barriers, such as fragmented supervision, tax systems and market infrastructure, continue to deter cross-border investment, the ECB said.
Household Savings and Investment Patterns
The report highlights that euro area households keep a large share of their savings in bank deposits, with relatively small exposure to equities, further reducing the pool of risk capital available to companies.
Policy Recommendations and Future Outlook
The ECB backed Commission proposals – from tax simplification to pension reforms and stronger EU-level oversight – as steps in the right direction.
But it signalled that more decisive action will be needed to overcome entrenched national barriers, such as national corporate and securities laws.
(Reporting by Francesco CanepaEditing by Tomasz Janowski)
