ABSTRACT
Capital market development and financial integration are of paramount importance for the European economy. For example, at the 2000 Lisbon Council they were included in the agenda intended to make the European Union (EU) the most competitive economy by 2010 (EC, 2000). The links between the size of the financial system and the level of economic development are well-documented (King and Levine, 1993). Moreover, increased financial integration, by reducing the cost of capital, will allow for a better allocation of resources. This may ultimately lead to increased economic performance. A study for the European Commission (EC), for example, estimates the potential impact of financial integration to be a 1% increase in EU GDP growth (Giannetti et al., 2002). Finally, the transformation of the financial system can have an impact on the stability of the system itself, with possible consequences on the whole economy (Padoa-Schioppa, 2003).
