European financial integration : measurement bond and stock markets

Abstract

The emergence of European Economic and Monetary Union (EMU) has given a large momentum to financial integration in Europe. After the introduction of the Euro(€) on 1 January 1999, all of the remaining exchange rate risk among EMU participants were removed and this was a milestone for the beginning of a single monetary policy for the euro area. This paper tries to identify the degree of improvement in European financial integration by presenting the theoretical point of view that tries to monitor the level of integration in the Eurozone. It starts by defining what financial market integration is and its benefits. Then it introduces the measurement methods for financial integration in both bond market and stock market. Last of all, this paper tries to distinguish the remaining barriers for full financial integration. The paper concludes analyzing aforementioned theoretical literature and further steps that are necessary to consolidate financial integration.