The Harmony Trap

A widespread feeling exists that European integration is proceeding sideways, if not backwards. But in at least one field, real progress has been made: the Commission's endeavor to build a single market for financial services.

An ambitious Financial Services Action Plan - launched in 1999 to bring about a single European wholesale market, open and secure retail markets, and state-of-the-art prudential rules and supervision - envisaged 42 measures to be implemented by 2003-2005. After a slow start, rapid progress has been achieved, with 36 measures formally adopted, including important directives on market abuse, prospectuses, financial collateral, distance marketing, collective investment schemes, and a common set of International Accounting Standards for the consolidated accounts of all listed companies.

A common position has been reached on four more measures, including directives on investment services, on transparency, and on takeovers. There has also been an institutional leap forward with the adoption of the so-called Lamfalussy method for quick adoption of implementing measures and approval of a European regulators' committee.

Impressive results. But to assess their relevance, three questions must be asked: was such harmonization necessary? How satisfactory are its results, over and above the sheer number of measures adopted? Most importantly, is completion of the FSAP sufficient to achieve the single financial market?