The ECB and the European Commission are looking to deepen integration and create a single market, starting with financial services, with the hope that this will channel more savings into investment and ultimately lift economic growth.
Financial interconnectedness indicators such as cross-border lending, bond volumes and market spreads have exceeded long-term averages since 2022, helped by optimistic sentiment, the ECB said in its biennial report.
The report showed that significant improvements were seen in the bond, banking and some capital market segments. However, stock market integration deteriorated over the same period and cross-border investment within the bloc fell to historically low levels.
EU capital markets are not efficient enough
“Empirical evidence points to a number of interrelated structural impediments that continue to limit the effectiveness of European capital markets in supporting innovation and long-term growth,” the ECB said in its report.
The ECB said barriers such as fragmented supervision, tax systems and market infrastructure continue to constrain cross-border investment.
The report emphasized that eurozone households keep a significant portion of their savings in bank deposits, with a relatively small share in equities, further reducing the amount of risk capital available to companies.
The ECB supported the Commission’s proposals – ranging from tax simplification to pension reform and stronger supervision at EU level – as steps in the right direction.
