[A-List] EU integration struggles: financial services

["Michael Keaney" <michael.keaney@xxxxxx>]

Brussels in new drive on financial services
By Francesco Guerrera in Brussels and Ed Crooks in London
Financial Times: November 12 2002

A single market for financial services would increase European Union growth
by at least 1.1 per cent over the next decade, adding ?130bn ($131bn) to
Europe's wealth and substantially reducing the cost of raising capital for
business, according to a study by the European Commission.

The unprecedented report will be used by the Commission as a wake-up call
for governments, whose disagreements over new laws, such as a European
takeover code, could jeopardise the EU's goal of a single market for
securities next year and for other financial services by 2005.

The report's estimates of the benefits of an EU-wide financial market are
considerably lower than previous studies by other organisations.

However, Commission officials say their estimates are conservative because
they focused on the cost of capital and did not include other likely
benefits of a single financial market - greater access to finance, better
portfolio allocations and lower stock exchange fees.

The study, to be published on Tuesday, says growth will be fairly even
across the 15 member states, with most expected to see an increase in GDP of
between 0.9 and 1.2 per cent.

Simplifying the maze of regulations that hamper cross-border sales of
financial services will boost EU employment by 0.5 per cent - a rise that
could help the EU to reach its target of becoming the world's most
competitive economy by 2010.

The Commission report is the first attempt by the Brussels authorities to
quantify the benefits of completing the Financial Services Action Plan - 42
new laws designed to create an EU-wide financial services market.

Some of the proposals, such as the takeover code and new plans to shake up
stock exchange regulation, have been opposed by large member states such as
Germany and France for fear they might harm domestic companies.

In February, the European Financial Services Round Table, a group of banks
and insurers, predicted that a single financial services market would add
some 0.5 per cent, or ?43bn, a year to the EU's GDP.

The Commission's paper, based on a year-long study, concludes that
businesses would be the main beneficiaries of an EU-wide financial services
market. The cost of raising funds through equity issues will fall by 0.5 per
cent, as the integration of equity markets sharply reduces trading costs,
and clearing and settlement fees, it says.

Lower costs should trigger a sharp rise in business investment, which is set
to rise by six per cent over the next decade.

Liberalisation financial services has been a central issue for Gordon Brown,
who has been arguing that Europe urgently needs to speed up reform to
stimulate growth.

The Treasury welcomed the report, saying: "We have consistently called for
early completion of the single market of financial services, because of the
significant benefits it would bring to EU businesses."