Theory of financial integration and achievements in the European Union

Stavarek, Daniel and Repkova, Iveta and Gajdosova, Katarina (2011): Theory of financial integration and achievements in the European Union. Forthcoming in: Matoušek, R. – Stavárek, D. (eds.) Financial Integration in the European Union. (Routledge Studies in European Economy). London: Routledge, 2012. ISBN 978-0-415-69076-8. (16 March 2012)

Abstract

Financial integration is the process that has been occurring in the European Union for many years and that intensified after adoption of the common currency in 1999. This paper discusses the theoretical framework of financial integration, particularly the definition, typology, benefits and drawbacks. More opportunities for risk sharing and diversification, better allocation of capital among investment opportunities, and potential for higher economic growth were identified as the crucial benefits of financial integration. By contrast, we consider increased vulnerability to external macroeconomic shocks and financial crises transmitted to higher output and consumption volatility as the most serious drawbacks of financial integration. The paper also summarizes the progress in financial integration that has been achieved in individual segments of the European Union financial sector. It is evident that the most integrated are the euro area money market and the government bonds markets. The remaining financial markets are still rather fragmented.

• Item Type: MPRA Paper
• Language: English
• Keywords: financial integration; financial markets; European Union; euro area
• Subjects: G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; F - International Economics > F3 - International Finance > F33 - International Monetary Arrangements and Institutions; F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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