Financial integration of new states threatened by ‘colonial attitudes’

By David Ferguson

Date: 13/11/03

EUROPE'S financial elite will give accession countries a clean bill of health for the single European financial market at a high-level conference in the Milan Stock Exchange next Monday (17 November).

Italy's Finance Minister Giulio Tremonti and European Central Bank President Jean-Claude Trichet, together with Economic and Monetary Affairs Commissioner Pedro Solbes and leading market figures, will rubber-stamp an assessment - backed by the Commission's latest monitoring report - that new members are ready for financial integration.

Back in June, Internal Market Commissioner Frits Bolkestein claimed EU financial integration would lead to a "windfall gain of at least €130 billion for the financial services sector".

"Financial services in accession countries are advanced in terms of implementing and enforcing the acquis communautaire," confirmed Elmars Kronbergs, a specialist advisor to the European Banking Federation on the accession countries.

During the late 1990s, a majority of financial institutions in the new member states were privatized. "That's why accession countries are well-prepared." Kronbergs admits, however, that local business may suffer in a single market from more difficult access to credit: "But maybe those businesses are not competitive."

Due to the small size of their capital markets, listed companies in the ten mostly former communist countries have additional problems raising capital. "It is a competitive disadvantage, especially if companies cannot get capital in western Europe. Perhaps that means creating regional stock exchanges," said Kronbergs.

Despite a clean bill of health, new members now face shifting goals set by the Financial Services Action Plan. The May 1999 plan laid down measures for a single financial services market by 2005 and integration of securities markets by the end of 2003. Thirty-six of the 42 measures foreseen in the plan have now been adopted - with good prospects for those outstanding.

Accession countries are gradually entering consultation circles as the five-year legislative phase draws to a close. Last month, however, the Commission set up four expert groups to assess market integration, claiming group membership ensured "geographical balance - including knowledge of the new member state markets". However, none of the 90-or-so experts comes from Cyprus, Estonia, Latvia, Lithuania, Malta or Slovakia.

"That reflects the fact that these capital markets are not important for western Europe. We have a colonial attitude to accession countries," said Karel Lannoo, director at the Centre for European Policy Studies.

He fears the consequences of not involving the new member states: "During discussions on the Investment Services Directive, there was no mention of candidate countries. How will these countries then tackle implementation and enforcement? They have limited expertise and workforce."

Dalia Jasulaityte, vice-president of Lithuania's National Stock Exchange, feels fairly represented in the EU institutions via the Federation of European Securities Exchanges. "The pace of legislative change in financial markets is such that even exchanges in the most developed and richest countries are wondering how to cope," she added.

Whatever changes occur to the Commission's consultative committees, Jim Murray, director of BEUC, the European consumer organization, does not expect consumers in accession countries to wake up on 1 May 2004 in a single European financial market: "There are still huge problems. Consumers have many difficulties from the most basic services like bank transfers to the most complicated like mortgages." Murray feels not enough information and statistics have been gathered: "We don't know enough. In theory, the Financial Services Action Plan is supposed to be there for consumers too."

• David Ferguson is a business specialist at www.euro-correspondent.com

Leading European financial figures, included European Central Bank President Jean-Claude Trichet, and Economic and Monetary Affairs Commissioner Pedro Solbes, were due in Milan on 17 November 2003 for a high-level conference at which they will approve the European Commission's 2003 Monitoring Reports, confirming that new members are ready for financial integration.