EU financial integration : is there a 'Core Europe'? ; evidence from a cluster-based approach

  • Numerous recent studies, e.g. EU Commission (2004a), Baele et al. (2004), Adam et al.(2002), and the research pooled in ECB-CFS (2005), Gaspar, Hartmann, and Sleijpen(2003), have documented progress in EU financial integration from a micro-level view.This paper contributes to this research by identifying groups of financially integratedcountries from a holistic, macro-level view. It calculates cross-sectional dispersions, andinnovates by applying an inter-temporal cluster analysis to eight euro area countries for the period 1995-2002. The indicators employed represent the money, government bond and credit markets. Our results show that euro countries were divided into two stable groups of financially more closely integrated countries in the pre-EMU period. Back then, geographic proximity and country size might have played a role. This situation has changed remarkably with the euro's introduction. EMU has led to a shake-up both in the number and composition of groups. The evidence puts a question mark behin d using Germany as a benchmark in the post-EMU period. The ¯ndings suggest as well that ¯nancial integration takes place in waves. Stable periods and periods of intense transition alternate. Based on the notion of 'maximum similarity', the results suggest that there exist 'maximum similarity barriers'. It takes extraordinary events, such as EMU, to push the degree of ¯nancial integration beyond these barriers. The research encourages policymakers to move forward courageously in the post-FSAP era, and provides comfort that the substantial di®erences between the current and potentially new euro states can be overcome. The analysis could be extended to the new EU member countries, to the global level, and to additional indicators.

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Author:Thomas Kiehlborn, Mark Mietzner
Parent Title (English):Universität Frankfurt am Main. Fachbereich Wirtschaftswissenschaften: [Working paper series / Finance and accounting] Working paper series, Finance & Accounting ; No. 130
Series (Serial Number):Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (130)
Publisher:Univ., Fachbereich Wirtschaftswiss.
Place of publication:Frankfurt am Main
Document Type:Working Paper
Year of Completion:2005
Year of first Publication:2005
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/10/06
Tag:Financial integration process; cluster analysis; core Europe; country groups
GND Keyword:Europäische Union; Kreditmarkt
Issue:version March 16, 2005
Page Number:56
First Version November 2004. This version March 16, 2005 (with updated graphs)
Source:Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting ; 130 , version March 2005 (with updated graphs)
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht