Citi Institute: Unified European capital market could boost regional GDP
A newly released report from the Citi Institute argues that deeper integration of Europe’s capital markets could generate substantial economic benefits, but warns that longstanding structural fragmentation continues to hinder investment, efficiency and innovation across the region.
Titled The Future of European Capital Markets: A Leap from Fragmentation to Harmonization, the report examines the impact of divergent regulatory frameworks, market infrastructure and operational practices within Europe. According to the analysis, a more unified European capital market could add an estimated €150 billion in annual investment and increase regional gross domestic product by around 1.5% over the next decade.
The research highlights fragmentation as a central challenge for European capital markets, citing duplicated systems, inconsistent regulation and complex cross-border processes. These factors, the report states, increase costs for market participants, limit economies of scale and discourage innovation. As a result, a significant share of European savings continues to flow into non-European markets rather than being invested within the region.
The report also includes findings from a survey of market participants. Nearly two-thirds of respondents (63%) identified major gaps in regulation, policy, taxation and operational processes as key issues requiring reform. A similar proportion (64%) indicated that meaningful harmonisation would likely take around ten years to deliver tangible results, reflecting the scale and complexity of the reforms required.
To address these challenges, the Citi Institute proposes a three-point action plan.
- Simplifying Market Infrastructure: Consolidating the numerous Central Securities Depositories (CSDs) and standardizing fee structures.
- Establishing a Single Pan-European Regulator: Creating a powerful, unified regulatory body with capabilities to ensure consistent rule application.
- Embracing Next-Generation Technology: Leveraging AI, Distributed Ledger Technology (DLT), and tokenization to streamline processes and enhance efficiency, with the upcoming T+1 settlement as a key driver.
The report also emphasises the importance of a geographically inclusive approach to integration. It highlights the potential benefits of incorporating major financial centres such as the United Kingdom and Switzerland into harmonisation efforts, including reduced duplication in due diligence, greater tax alignment and increased market liquidity. According to the authors, broader cooperation could enhance the competitiveness and attractiveness of Europe’s capital markets for both businesses and investors across the continent.