ECB vice-president urges deeper European integration to absorb future shocks
Europe should strengthen its internal economic links rather than retreat from global openness, European Central Bank Vice-President Boris Vujčić argued in a speech in Dublin on 2 November. He said closer integration could help European economies withstand geopolitical, energy and financial shocks whose effects are often uneven across countries.
Vujčić spoke at the Central Bank of Ireland’s Financial System Conference. His argument was that Europe cannot prevent every external disruption, but can make its economy more resilient by reducing barriers between member states and allowing capital, energy and other resources to move more freely. The proposals are policy recommendations, not measures already agreed or implemented.
Internal barriers and the cost of fragmentation
The speech described divergent national rules, standards and procedures as a practical obstacle for companies seeking to operate across borders. The ECB estimates that these internal frictions are equivalent to an upper-bound tariff of about 67 per cent for goods and 95 per cent for services. Those figures are estimates of the cost associated with regulatory and other barriers; they are not actual customs duties imposed on trade between EU members.
Vujčić also compared the pace of financial integration. Estimates cited in the speech suggest that barriers affecting equity holdings between euro-area countries have fallen by about 12 percentage points since 2014. Comparable frictions between the euro area and the United States declined by about 25 points over the same period. The comparison indicates that cross-border investment within Europe remains comparatively fragmented, even as investors have become more connected across the Atlantic.
That pattern matters because European savings can finance businesses outside the region while companies at home encounter a less unified pool of investment. Vujčić noted that US funds invest around six times as much in venture capital as EU-based funds. This comparison does not mean that all European savings leave Europe, or that investment abroad is inherently harmful. The concern in the speech was that a shallow home market can limit the financing available to growing European firms and make it easier for successful start-ups to shift their headquarters, intellectual property or listings elsewhere.
Risk sharing and the shock to investment
A central part of the case for integration was the ability to share the effects of a shock. When energy prices or other costs rise, countries and firms are exposed in different ways. Cross-border investors can spread gains and losses, while banks operating across countries may be able to sustain lending where domestic conditions weaken. Shared energy markets and physical interconnections can also help reduce differences in prices.
Research cited by the ECB estimates that markets and fiscal transfers absorb around 70 per cent of state-level output shocks in the United States. In the euro area, the corresponding share is about 30 per cent, while capital markets alone absorb an estimated 5 to 10 per cent. These are measures of how economic shocks are distributed across regions, not forecasts of what any particular future crisis will cost.
The speech also referred to studies of company investment. European firms have tended to reduce investment when oil prices rise, while the same pattern was not observed for US firms in the cited research. During the COVID-19 shock, firms with mainly domestic shareholders cut investment about 20 per cent more than comparable firms with international shareholder bases. The comparisons support the argument that broader ownership can provide a buffer, but they do not establish that shareholder geography alone explains each firm’s decisions.
Proposed steps for a more connected market
Vujčić said a two per cent reduction in internal barriers to trade in goods and services could, over the long term, offset a projected 0.7 percentage-point effect on euro-area GDP from higher US tariffs between 2025 and 2027. Both figures are estimates in the speech, and the comparison is conditional rather than a guarantee that barrier reduction would fully cancel a particular economic outcome.
Among the institutional changes he advocated were completing the banking union, including a European deposit insurance scheme, and making cross-border banking easier within the euro area. He also called for integrated capital markets, with savings more readily directed towards productive investment, and for work to harmonise withholding taxes. In payments, he argued for resilient European infrastructure, including the digital euro for retail payments and a European wholesale digital-payments system.
Energy was another part of the resilience argument. The speech said the EU imports 57 per cent of its energy and almost all of its oil and gas. More connected markets, alongside a shift towards renewable sources, could reduce dependence on imported fossil fuels and lessen the influence of gas prices on electricity costs. The scale of any benefit would depend on the pace of infrastructure development, national energy mixes and future market conditions.
The broader message was that openness and resilience need not be opposing goals. Vujčić’s proposals focus on strengthening the European structures that help businesses and households absorb disruption, while keeping trade and investment links with the rest of the world. Whether that approach delivers the projected gains will depend on policy decisions by European institutions and member states, as well as on how the economy evolves.
