The process of financial integration of EU economies

The aim of this document is to complement the analysis of ‘variegated financialisation’ provided (in an associated paper) by Passarella Veronese (2013) with a preliminary examination of the process of financial integration of EU countries, and especially of Euro Area’s member-States. In this regard, figures show that a process of increasing financial interconnectedness between different country-based economic units has been actually operating since the early 1990s within the Euro Area. As pointed out by ECB’s staff and other economics studies, convergences in lending rates and sovereign bond yields have been recorded, coupled with growing cross-border flows of capitals and cross-border interbank market integration (until the outbreak of the recent European crisis at least). However, especially after the launch of the single currency in 2002, this dynamics has gone along with growing current account imbalances (and, symmetrically, financial imbalances) within the Euro Area, due to differences in national growth rates, ‘inefficiencies’ in economies of peripheral countries, and the successful deflationary policies adopted by core countries. As a result, the permanent current account deficits of Euro Area’s peripheral economies have reflected in an increasing amount of financial liabilities placed by their government sectors in international markets (until the outbreak of the crisis at least). Thus, ‘real-world’ financial integration has not led to the development of a net of horizontal links between economic units operating within a uniform supranational economic space. What figures show, is rather a process of concentration and centralisation of capitals within the Euro Area, reinforcing structural imbalances between the core and the periphery. In the absence of radical changes in European institutions, this asymmetric integration is further endangering, instead of improving, the financial soundness of EU.