Banking on the euro

Economics Department

The introduction of the cash euro on 1 January 2002 has changed the lives of more than 300 million people.

The second OECD Economic Survey of the euro area looks at budgetary policies and pressures in member countries, the prospects for economic recovery in the currency zone and the performance of the European Central Bank. But it also takes a special look at whether, with a single currency available across 12 countries, switching your bank account or mortgage to another euro area country is now an option or still a daunting task.

Travellers in the euro area complained bitterly early this year when they found that the long-awaited dream of unfettered cross-border shopping had remained costly. True, the euros they drew out of bank cash machines abroad were the same as the euros at home, making it easy to compare prices. But when the travellers received their bank statements they found they were being charged far more than back home for the privilege of using their cash cards. That practice was ended before the holiday season by an EU directive, but integration in the banking sector still has along way to go to catch up with the integration that is taking place in other financial markets.

As the OECD Economic Survey of the euro area found, even the massive merger and acquisition activity in recent years might not advance matters as much as some might expect, since this has served mainly to concentrate national banking markets. In fact, there have been relatively few cross-border tie-ups. It is also virtually impossible to make comparisons about mortgages since lending systems for house purchases are very different from one country to another, while barriers to foreign entrants into local insurance and pension markets also remain considerable.

For consumers, transferring money from one euro area country to another is still generally much more expensive than transferring money within a country. The banks have argued that this is because there is no integrated pan-European retail payment system, so that transactions have to be processed manually and are therefore more costly. But they also say that the volume of such transactions is too small to make an integrated system worthwhile. From next year, EU authorities have ordered banks to charge the same for card use anywhere in the euro area from July 2002. But only time will show whether the lower costs will raise the volume of such transactions enough to make a cross-border system profitable, the Survey says.

When it comes to day-to-day experience, euro zone banking still very much begins – and ends – at home. Banks do not seem to reach out for prospective customers beyond national borders, while consumers do not go cross-border shopping around for credit either.

EU authorities have been inclined to let market forces do the work. As the survey notes, the fact that no common system has been developed to facilitate cross-border transfers of small sums even after decades suggests it is time for the authorities to adopt a more pro-active role.


OECD (2002), OECD Economic Surveys: Euro Area, Paris.

©OECD Observer No 234, October 2002

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