20 September 2007

OECD first economic survey of the EU

The OECD launched its first Economic Survey of the European Union noting that member states need to provide a fresh impetus to clear the rules and red tape which are stifling competition and blocking cross-border trade and investment.

The report highlights good progress in financial markets but calls for changes to Europe’s fragmented banking industry. Establishing an effective single euro payments area (SEPA) to make it easier to transfer money from one country to another, needs to be accelerated.

Chapter 3. Building competitive financial markets

Europe’s financial markets are undergoing a rapid transformation. The renaissance since 1996, when the Investment Services Directive came into force, has been impressive. Bond issuance has more than doubled; equity market capitalisation has tripled; and equity turnover and the value of derivatives have increased six-fold. In some niches, Europe has overtaken the United States. There is unfinished business nonetheless. The main challenges include greater integration of retail banking, deeper corporate finance markets and stronger financial surveillance. The chapter discusses the role that can be played by mortgage market reform, the Single Euro Payments Area (SEPA), the MiFID, mutual funds and banking supervision.

Chapter 4. The regulatory framework at the community level

Effective regulation underpins the single market. EC initiatives have been crucial in facilitating cross-border trade by smoothing out differences in regulations and standards across member states. The challenge in coming years is to keep up the momentum and ensure that interventions are well chosen, effective and implemented at minimum cost. This involves careful thought about whether intervention is necessary, what the measure is trying to achieve and what the best way to meet those objectives might be. Regulation is not always the best option. All interventions have compliance costs, and over-regulation and poorly designed laws can create more problems than they solve. This places a premium on sound regulation in the first place, especially ones based on principles rather than being overly prescriptive so that they are flexible enough to adapt to unforeseen economic and technological developments.

Press release

Survey

© Graham Bishop