Between Lisbon and London: Financial Sector Consolidation in the Context of the Lisbon Agenda

Abstract:     
A review of the intermediate effects of the Lisbon Agenda is conducted. The Lisbon Agenda focused on innovation, productivity and growth, with a goal to make Europe the most competitive and dynamic economy inthe world by 2010 through financial sector integration and consolidation. Integration was expected to lead to increased efficiency and growth, and to support small, innovative companies. However, the short-term effects on thefinancing of innovationhave been found to be ambiguous. Concern spurs from the perceived reliance of small- and medium-sized enterprises (SMEs) on local financial institutions and on relationship lending. Consolidation increases competition pressure on such small banks and could jeopardize the SMEs' source of finance, since large institutions are often unable or unwilling to handle loan applications by SMEs. However, ifalternative finance sources, such as de novo banks and venture capital markets,are allowed to develop unhindered, negative effects are likely to disappear inthe long-term. Implications for policy-makers include ensuring that markets stay open andflexible to encourage new forms of financing. Also, antitrust authorities mustpreserve competitive bank markets and facilitate cross-border bank mergers. Finally, the EU governments should take measures, such as creating exit optionsfor venture capitalists and eliminating rigid labor markets, to encourage innovation. (LKB)

Keywords: Lisbon Agenda (European Union), Public policies, Venture capital, Access to capital, Acquisitions & mergers, Antitrust laws, Loans, Financial markets, Market competition, Market consolidation, Productivity growth, Development policies, Innovation policies, Agglomeration economies, Firm size, Banking industry, Finance, Financial institutions

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