[A-List] EU integration struggles: financial services

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

France and Spain 'to gain in EU financial services'
By Francesco Guerrera in Brussels
Financial Times: November 13 2002

France and Spain are set to gain more than the UK and Germany from a
Europe-wide market for financial services, according to a European
Commission report published on Tuesday.

The 207-page study also found that integration in European markets would
cause a sharp fall in the cost of trading shares to the low levels seen in
the US, making it cheaper for companies to raise funds.

The findings on the economic benefits could help the Brussels authorities to
persuade the French government to soften its opposition to some of the new
laws aimed at creating a single financial services market by 2005.

However, the limited benefits to the German economy could harden Berlin's
stance on key Commission proposals such as new plans for a European Union
takeover code.

The unprecedented study concludes that a single financial services market
would add 1.1 per cent, or ?130bn, to the economy of the whole of the EU
over the next 10 years. The Brussels authorities said that the French
economy would see a rise of 1.4 per cent over the period while Spain should
benefit from a rise of some 1.2 per cent.

The UK's economy would grow by 1 per cent and Germany's by 0.9 per cent, one
of the lowest rates of growth among the EU's 15 member states, the report
said.

According to the Commission, France would reap bigger benefits than some of
the other larger member states because a large part of its workforce is in
the public sector, where wages rise less than in the private sector.

As a result, the increase in employment caused by an integrated financial
market - estimated at 0.5 per cent over 10 years - would cause a smaller
rise in the total wage bill and have a bigger effect on economic growth.

Some of the smaller economies are set to benefit even more than France from
a single financial services market, with Denmark and Finland set to grow by
nearly 2 per cent over the decade.

The report said integrated markets would enable companies in the two
countries to sell their services into neighbouring Sweden, boosting economic
growth.

On share trading, the report concludes that an integrated financial market
would slash costs by more than 80 per cent in several EU countries.

"Our estimate of average trading cost in an integrated European financial
market is very similar to average trading cost levels observed on the New
York Stock Exchange," the report said.

Lower trading costs would reduce the average cost of raising funds by up to
0.5 per cent across the EU, the report concluded.