Bond markets
Banking
POLICY MISSIONS
MAKING THE EUROSYSTEM A CENTRAL BANK
DEALING WITH EUROPEAN UNEMPLOYMENT
MANAGING FINANCIAL TRANSFORMATIONS
COPING WITH A LACK OF POLITICAL UNION
CONCLUSION
The importance of the monetary strategy for a successful start of European monetary policy
The new monetary policy instruments and procedures for the euro area
Minimum reserve system
Introduction
Monetary policy strategy of the ESCB
Pushing the boundaries of the process of European integration
Pushing the boundaries of stability-oriented economic policies
Pushing the boundaries in the development of financial markets
The Eurosystem and the equity markets
Introduction
The monetary policy strategy
Accountability and transparency
Навигация
Pushing the boundaries in the development of financial markets
Европейская денежная система
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4. Pushing the boundaries in the development of financial markets
However, the success of the euro is not only in the hands of central bankers and policy-makers. An important area in which the private sector has an instrumental role in meeting the challenge of pushing the boundaries is in the development of the European financial markets. In order for the euro to be a success, it is important for the euro area financial markets to become wider, deeper and more diversified. The introduction of the euro has provided further input into this process; the elimination of exchange rate risks has removed one of the main barriers to financial market integration in Europe.
In most European countries, the financial markets have, traditionally, been rather shallow, with few participants and a narrow range of financial instruments on offer. A high degree of segmentation and a lack of cross-border competition have implied relatively low trading volumes, high transaction costs and a reluctance to implement innovative financial instruments. This segmentation has been a function of exchange rate borders, tradition, differing practices and, of course, national regulations and tax regimes.
Following the elimination of the barriers implied by different currencies, it is now up to the European Commission and the relevant national authorities to further the integration process in the areas of regulation and taxation. Meanwhile, it is up to market participants to take advantage of the business opportunities implied by the increased scope for market integration.
The introduction of the euro brought about an almost immediate integration of the national money markets into a euro area-wide money market. This was made possible thanks to the establishment of pan-European payment systems, such as the TARGET system set up by the Eurosystem, which enables banks to access liquidity throughout the euro area in real time.
The cross-border integration of bond markets in the euro area is progressing at a slower pace, as is also true of equities and derivatives markets. This notwithstanding, we are also experiencing important developments in these segments of the financial markets. These developments are partly due to the general trends towards globalisation and technological refinement and partly related to the introduction of the euro. As a result of the introduction of the euro, market participants increasingly perceive similar instruments traded in the different national markets to be close substitutes. This holds true, in particular, for bonds issued by the euro area governments, where the establishment of common benchmarks, the narrowing of yield spreads and increased market liquidity seem to indicate that a high degree of cross-border substitutability has already been achieved.
The fact that euro area financial instruments are increasingly considered to be close substitutes increases the competitive pressures on national markets to attract issuers and investors wishing to benefit from increased cross-border competition and lower transaction costs. In this context, we have recently experienced several initiatives aimed at creating capital markets across national borders, such as the plans to establish common trading platforms linking the European stock exchanges. Similar initiatives have also been taken to establish links between national securities settlement systems, which would facilitate the cross-border mobilisation of securities. In the longer run, such developments will make it possible for investors to manage their investment portfolios more efficiently.
The Eurosystem welcomes such initiatives aimed at improving the cross-border integration of financial markets in the euro area, and globally, since they may result in a wider range of financial instruments on offer, and at a lower cost, than is currently the case in the national markets. This could lead to a virtuous circle in which the increased issuance of instruments denominated in euro will draw the attention of international investors to the euro area capital markets, in turn making the euro an increasingly attractive currency for private as well as public issuers.
In fact, the experience of the first few months of the life of the euro seems to indicate that such a positive development may already be under way. In the first quarter of 1999, bonds denominated in euro accounted for around 50% of the bonds issued internationally. This share is considerably higher than the traditional aggregate share for bonds denominated in the constituent currencies, which had been in the range of 20% to 30% in recent years. We have also seen a considerable increase in the average size of bond issues denominated in euro, as compared with those of bonds denominated in the former currencies, which may indicate that the trade in euro-denominated issues is likely to become increasingly liquid.
Despite the recent developments in the euro area capital markets, euro area companies are still mainly dependent on financing through the banking system. Hence, there is still plenty of scope for further development in the area of corporate financing. For example, the amount of private bonds traded in the euro area is still very low compared with the United States. The market capitalisation of equities is considerably lower in most euro area countries as compared with the United States and the United Kingdom. Likewise, the venture capital business in the euro area is still in its infancy compared with the relatively mature venture capital markets in the United States and the United Kingdom. Personally, I am convinced that the introduction of the euro will also be helpful to the development of these segments of the financial markets.
In this context, I should like to say a few words on how the introduction of the euro may underpin the reshaping of the European banking sector. The increased scope for securitisation will put pressure on the European banking sector to move away from traditional retail banking activities in favour of more advanced financial services. The European banking industry is still segmented into relatively small national markets. The introduction of the euro is likely to add momentum to cross-border integration in the European banking sector. Although a considerable consolidation of the European banking sector has taken place over the last decade, this consolidation has so far been almost exclusively based on mergers and acquisitions within national borders. It is only recently that we have also started to see such deals taking place across national borders.
I welcome this trend towards an expansion beyond national borders with open arms, since the establishment of truly pan-European - and global - banking groups will be instrumental in efforts to enhance competition in the provision of financial services.
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