Between Lisbon and London: Financial Sector Consolidation in the Context of the Lisbon Agenda

Abstract

It's "half-time" for the Lisbon Agenda - which has aimed to make Europe the most competitive and dynamic economy in the world by 2010. And it's "half-time" for the EU Financial Services Policy, which aims to increase financial sector integration and should give a helping hand to small and innovative companies that are a corner stone of the Lisbon strategy. But discussion on the ground continues to reveal concern that financial sector integration (and national consolidation) is putting significant pressure on some of Europe's traditional lenders to small companies. Financial sector integration has the potential to increase efficiency, competition and choice in financial intermediation. But the short-term effects of integration can vary. National consolidation leads to larger banks that may be unable or unwilling to handle business with small innovative firms. Other existing or "de novo" banks and financial institutions as well as venture capital firms play an important role in filling any potential "financing gaps". The policy implications are important. Consolidation that is unaccompanied by measures to improve or ensure market openness and contestability may prolong any adverse effects from the integration process, especially for small borrowers. Consolidation has progressed, fostering the emergence of national champions. Ease of market entry now needs to be reinforced across Europe. A stalled process of integrating Europe's financial markets could compromise the Lisbon Agenda and the prospects of some of the small and innovative companies on which its success relies.