Brussels, 18 April 2005
What is meant by cross-border consolidation?
In this survey (see: IP/05/444), cross-border consolidation is understood as mergers or acquisitions (of full or partial stakes) involving two or more financial institutions (defined as a credit institution, an insurance undertaking or an investment firm) located in at least two different EU Member States.
Why is cross-border consolidation needed? What will the benefits be for citizens and businesses?
The Commission does not take a view on the desirability of consolidation as such. That is for the market to decide. But in a truly integrated EU capital market, cross-border mergers and acquisitions must be one of the options open to financial institutions. Cross-border consolidation can be a channel of financial integration, alongside others such as direct cross-border provision of services, greenfield investments, alliances, joint ventures or cooperation agreements. A well-functioning integrated market for financial services is expected to benefit businesses (easier and cheaper access to finance) and consumers (increased choice of products, higher returns for investments) alike. Theoretical and empirical evidence supports the view that integration in the banking sector can enhance overall economic performance via macroeconomic stabilisation, higher levels of efficiency and consumer welfare.
What are the cross-border opportunities for companies in the EU Single Market?
The EU single market is now made up of 25 Member States, with a population of more than 450 million people. Companies which operate on an EU-wide basis can offer their products and services to a significantly larger number of potential customers than within their domestic market. By enlarging their customer base, companies can benefit from scale economies as well as increased risk diversification. Hence the EU single market increases the growth potential for the individual market players as well as for the EU economy as a whole.
What prompted the Commission to launch this survey? Is it in response to the current takeover bids in Italy?
No. The survey is part of the response to the Economic and Financial Affairs Council (Ecofin) mandate of September 2004 to review potential obstacles to cross-border mergers and acquisitions. Besides economic and legal analyses, the Commission felt it was important to get market views on those obstacles that are viewed as the most inhibiting.
This survey is an important part of a wide-ranging effort by the Commission to understand why we see so little cross-border consolidation in the EU. Specific cases might put the spotlight on problematic issues, which the survey aims to identify.
Why are you consulting the whole financial sector, while the Scheveningen discussion focused on banking?
The Ecofin mandate focuses on the banking sector, and the final response will reflect this. But some obstacles are not sector-specific and may inhibit, for example, insurance companies. Any future Commission action will have to stem from an approach that is consistent across sectors. Appropriate follow-up will be ensured, should any specific problem appear in an area other than banking.
Which empirical data showed that the level of cross-border consolidation is low?
The Commission has analysed the European cross-border consolidation process in a study that will be part of the 2005 Financial Integration Monitor (FIM) report, due in May. For instance, it will show that, between 1999 and 2004, cross-border deals accounted for around 20% of the total value of deals within the financial sector. In other sectors, this proportion equalled 45%. The results of this specific study are consistent with those in existing economic literature.
What has the Commission already done to improve the situation?
The Commission has worked on the creation of an integrated EU financial market by carefully guarding the basic freedoms of the EC Treaty – in particular the freedom of capital movements and the freedom of establishment. This has lead to a number of important steps taken by the EU Member States in opening their domestic financial markets – for example by eliminating capital controls.
Enforcing Treaty rules has been complemented by EU legislation, in particular, the Financial Services Action Plan (FSAP), launched in 1999 and now nearing completion. The FSAP has - along with other political initiatives - been a successful step towards the creation of a single European financial market.
Does the Commission play an active role in cross-border consolidation?
No. The role of the Commission is to ensure that existing EU law is enforced properly, as well as to propose measures to support growth, in line with EU competitiveness policy.
It is not the Commission’s intention to favour specific business models or to influence individual market decisions, as long as they are compatible with the Treaty rules and EU law.
Rather, it is the role of the Commission to analyse market functioning in order to identify any unjustified obstacles that could hamper companies in making their own decisions regarding their business organisation within the Internal Market.
On which types of factors and obstacles does the survey focus?
The survey does not limit market participants to a few given obstacles, but asks them for a broader picture of all factors which may inhibit them from exploiting cross-border opportunities stemming from the Internal Market.
To support market participants in organising their input, the Commission has come up with an extensive list of possible obstacles of all types (legal, tax and economic barriers, implications of supervisory rules and requirements, ‘attitudinal’ barriers). Those different potential obstacles are presented in a background paper, available for download with the survey reply form.
How was the list of possible obstacles compiled?
The list was compiled by analysing and structuring the substantial input the Commission has received from various sources, such as post-FSAP consultation, informal contact with market participants, Member States and regulators and published economic studies.
Who can respond to the survey - individuals or companies?
All replies are welcome from those who feel they have a stake in this issue. However, the survey is directed primarily at companies that, in making their business decisions, are confronted with the very obstacles we are trying to identify.
Will individual contributions to the survey be published?
No. The objective of the survey is to identify, on a pan-European basis, the most problematic obstacles on which policymakers should focus. So the intention is to publish only aggregated, anonymous results.
What will the Commission do with the results of the survey?
The survey results will be an important element of the Commission’s response to the Ecofin mandate (see above). They will be used to identify the most problematic issues, which could require specific attention and further analysis.
What other action does the Commission plan in this area?
In its response to the Ecofin mandate, the Commission intends to rely on precise and detailed analysis from three different points of view.
The first angle is the market’s perception, which the survey will give us.
The second angle is the economic facts, which will be published in the 2005 Financial Integration Monitor (FIM) report.
The third angle is the legal aspects, where the Commission is, among other things, reviewing those parts of the EU Banking Directive (2000/12/EC) that allow Member States to block mergers and acquisitions using prudential grounds. It is also working to clarify, in an interpretative Communication planned for July 2005, the application of the Treaty-based freedom of capital movements to cross-border mergers and acquisitions in the financial sector.