Financial integration in the eurozone “stalled” last year, according to the European Central Bank, which is urging member states to plough ahead with plans to create a fully-fledged banking union in the bloc.
In its latest bi-annual assessment on the state of financial risk sharing in the 19-country eurozone, the ECB said one measure of integration had “flattened out” last year, bringing an end to tentative progress since the eurozone’s debt crisis.
This stalled progress was partly the result of “different economic outlooks across countries, fluctuating global risk aversion and political uncertainty” last year, said the ECB.
Financial integration and greater risk sharing are seen as key to the future resilience of the eurozone economy to shocks such as economic slowdowns, banking troubles, and poor investment levels.
Since its debt crisis in 2010, the eurozone has embarked on plans to create a banking union, which would eventually guarantee deposits across the bloc, impose uniform regulation across banks and allow banks to lend seamlessly within the single market.
But progress on completing banking union has been beset by political differences between Germany and its fellow member states.
“Banking union and capital markets union are undoubtedly the two central policy initiatives to catalyse financial integration in the EU for the years to come”, said ECB vice president Vítor Constancio.
“The two projects should be seen as mutually reinforcing initiatives that can bring the Single Market for financial services to the next level”, said the Portuguese central banker on Friday.
The ECB’s report found that “cross-country risk-sharing is still low and private financial risk-sharing is not contributing much to it”.
The central bank said it supported measures to create joint deposit insurance in the eurozone – a measure that has been opposed by Berlin’s finance ministry.
Another potential remedy to fractured credit markets is the creation of more pan-European banks, said the ECB, which “could help financial integration and foster risk-sharing via retail credit markets”, said the report.