Slow road to financial services single market

Date: 28/03/1996

THREE years after the barriers to a border-free Europe in goods, services and capital officially came down, progress towards a genuine single market in financial services remains painfully slow.

As our survey of the banking and finance industry this week reveals, companies in this sector wishing to take advantage of the opportunities the internal market is supposed to offer to both businesses and consumers have been deterred by the obstacles still placed in their way by many member states.

Similar problems continue to beset attempts to create a genuine free market in investment services.

On paper, a great deal has already been achieved. But although EU governments were given more than two years to prepare for the change-over, many failed to meet the 1 January 1996 deadline for putting two key directives - one designed to allow investment firms to set up shop anywhere in the EU with a single licence and the other to minimise the lending risks of securities companies and banks - on to national statute books.

Consumers should be able to have a current account with a bank from one member state, a mortgage from a second and to insure the contents of their home or car through a third. But while in theory it might be possible, in practice it is extremely difficult.

There are many who argue that these barriers will only truly disappear once the final piece of the single market jigsaw - the single currency - is in place.

That may well be true. After all, one of the biggest deterrents to an explosion in cross-border bargain-hunting by consumers searching for the best financial deals on offer is the fact that currency fluctuations could wipe out any potential gains they might make.

It may also be true that it will take longer to persuade consumers to shop around for financial services than for other goods, given the language problems and legal complexities involved.

But this can be no excuse for the actions of those member states who have so far refused to dismantle the hurdles which banks and other providers of financial services have to climb over to stand any chance of reaping the same benefits from operating in a single market as those already enjoyed by other industries.

Internal Market Commissioner Mario Monti has already threatened to take recalcitrant member states to the European Court of Justice if they do not fall into line.

He must be prepared to carry out this threat if offending governments do not act quickly to put things right.

After all, mortgages, insurance and other financial services swallow a huge chunk of the incomes of many EU households.

If the obstacles which deter most ordinary consumers from exercising their right to shop around for these essential items are not removed, then their faith in the single market - that most tangible sign of the benefits of EU membership - will surely be undermined.