The EU has recently published its European Financial Integration Report (EFIR) which is an annual analysis of the integration in the EU financial sector and its effects on competition, efficiency, financial stability and competitiveness.

The report highlights the fact that there was a very high degree of integration in the wholesale segment (especially the money and bond markets) within the EU, while integration within the retail segment lags behind. In the banking and insurance markets, cross-border mergers and acquisitions continue, while direct cross-border provision of services remains marginal. Additional progress, particularly in equities and retail markets, will rely on boosting competition and the consolidation of payment and settlement infrastructures.

Competition is an important aspect in financial integration and a whole chapter of the report is dedicated to an analysis of the market structure and competition between intermediaries, markets and infrastructures. The analysis shows that for a number of EU-12 Member States high margins, costs and profitability could increase competition and efficiency in the banking sector.

Special attention is paid to the impact of the Code of Conduct on securities post-trading. While the first signals are positive, further progress is needed before the Code can be considered truly successful. As for equity trading, the implementation of the Markets in Financial Instruments Directive (MiFID) already seems to have had a substantial impact on competition.

EFIR also discusses efficiency. The recent turbulence has had a negative impact on efficiency indicators within the EU banking sector and on the performance of EU equity markets, both in terms of capitalisation and trading activity. The report shows that stock markets remained relatively liquid despite falling indices. The report also covers details about access to finance by European households and enterprises. In fact the report shows that there are big differences between the EU-15 and EU-12 Member States.

The Annex to the report presents the main achievements of the EU in the field of financial services in 2008 as well as additional information on financial integration indicators.

The full report can be accessed from: http://ec.europa.eu/internal_market/fim/index_en.htm.

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