Integration of financial services in EU by 2007

The integration of European capital markets is closer than most of us imagine: Barring any last-minute obstacles, a common regulatory framework will be in place by 2007. This will not result immediately in a single, giant European Union stock market, although something similar may evolve over time. It will, however, provide unfettered access to all EU capital markets for all market players, including stock exchanges, depositaries, transaction clearinghouses, investment firms, banks and their investment subsidiaries, listed firms and, of course, investors. The aim is to create a «single passport» for those players and a «single entry point» to all EU capital markets. This integration, in its simplest interpretation, means that everybody involved in capital markets can be active throughout the EU. This will, of course, affect market shares and will affect the standing of local players, even in the Greek capital market. Whether local players are ready for this is a big question. Panayiotis Alexakis, chairman of Hellenic Stock Exchanges, which includes, mainly, the Athens Stock Exchange (ASE) and the Athens Derivatives Exchange (ADEX), thinks it is urgent that domestic market players prepare for the integrated European market. Alexakis, who has been a member of the ASE board since 1997 and its chairman since 2001, is also an assistant professor at Athens University. It is in this latter capacity that he produced, earlier this week, a short (20-page) paper on «The European Single Market on Financial Services.» Alexakis is known for his considerable effort to reform the regulatory framework of the capital market during a difficult period. Alexakis reminds us that the integration of European capital markets stemmed from the ambitious agenda formulated at the Lisbon European Council on March 23-24, 2000 (and not on May 23-24, 1999 as the author mistakenly says). There, European leaders outlined a program that would enable Europe «to become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion.» This ambitious goal had a target date: 2010. In hindsight, the goals of the so-called Lisbon Agenda, and their timetable, appear almost ludicrous. A few months later, Europe entered an economic slowdown from which it has not yet recovered. As far as competitiveness is concerned, it has lost even more ground to the US as well as to some Asian economies. Despite the obvious failure of the grand Lisbon Agenda objectives, the goal of a single financial services market appears achievable. So far, Alexakis observes, 38 of the 42 proposed measures or directives contained in the Action Plan adopted in March 2000 have been adopted. Still, as Alexakis observes, adopting the measures of the action plan is not enough to create a single, competitive financial services market. «The greatest challenge is the effective implementation of the Action Plan in each EU member state,» he says. The so-called «single passport» to investment firms will be provided through a directive on investment services which must be adopted by May 31, 2006. But there are other steps to be clarified, such as problems arising out of the settlement of cross-border transactions. This is not a simple issue: The Committee of European Securities Regulators (CESR) and the European Central Bank are considering 19 transaction clearing alternatives. It has been proposed that 10 of them will be adopted. There are also legal issues to be resolved, such as differences regarding bankruptcy. Despite these difficulties, integration is (almost) here. Alexakis’s message to local market players is simple: Be prepared, become competitive – or else.