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Financing of the EU economy - Priorities for building a single retail financial market
The EU single retail financial market requires strong political leadership
By Theurer Michael - MEP, Committees for Economic and Monetary Affairs and Budget Control and Co-Rapporteur for Taxe, European Parliament
The area of retail financial markets is a typical example of where the EU single market exists only on paper and EU policy-makers have to pro-actively engage in putting an end to cross-border obstacles and generating a true EU single market for retail financial services.
The single market of around 500 million citizens is the world’s largest and among the biggest achievements of European integration. In many other sectors it has been shown that enhancing the single market increases competition and thus the range offered to consumers at lower prices. Lower product fragmentation is also expected to contribute to our goal of achieving financial stability. I therefore welcome the initiative by the European Commission to present the Green Paper and launch a consultation process.
The market for retail financial services is performing weakly, with huge differences in prices and interest rates across EU member states, low levels of product switching and high entry and exit barriers. The differences in credit rates leads to the assumption that this is not only reflecting different credit risks, but that the single market does not function. Advancing the single market would increase consumers’ choice of products that might be more suitable to their needs, it would decrease prices and enhance cross-border business opportunities for service providers and innovative digital start-ups. Thus far, fewer than 3 per cent of consumers have purchased credit cards, current accounts or a mortgage from another EU state. Only 5 per cent have bought consumer loans abroad. If you look at the spread of fees, loan rates or insurance premiums you can clearly identify the positive effects of policy action aiming at increasing the cross-border provision of retail financial services. With credit card fees coming at 114 Euro per year in Slovakia but at zero cost in the UK, or annual car loan rates amounting to 13 per cent in Greece but only 2 in Belgium, or mortgage rates rising to 8,5 per cent in Hungary but only to 1,8 per cent in Finland, consumers have every reason to search EU-wide.
But they will only do so when they know what is on offer and have transparent and complete information in a language they understand, and the confidence that the product they want to choose is safe.
At the same time, enhancing the single market for retail financial services would most likely foster the development of new, innovative solutions and technologies and provide new business opportunities. However, this also means that we need more efforts in developing the necessary broadband infrastructure both mobile and fixed. The initiative should also be seen in the context of the reform of the legal framework for data protection that is currently under way. We seek to push for the right balance between data protection and the opportunity for use of big data by the private sector.
When it comes to the digital revolution, Europe has already missed out in the development of social networks and the sharing economy. As policy-makers we need to push for the right legal framework that enables our companies to be innovative and competitive and our consumers to fully take part in the benefits of digitalisation.