A merger of the Deutsche Börse and the London Stock Exchange would support the political project of the Capital Markets Union and give European companies more funding opportunities. SMEs and savers would particularly benefit. This is the conclusion of a new study of the Cologne Institute for Economic Research (IW).
The majority of European companies is still financed rather through traditional bank loans than through stocks and bonds. The proposed merger of the two financial centers of Frankfurt and London could contribute to a more balanced corporate finance: The merger would deepen and integrate capital markets in Europe and provide companies with a larger pool of financing options and give them access to a large range of international investors.
SMEs benefit from more liquidity, higher competition and more favorable prices
According to the study, which was elaborated for the German Börse Group, liquidity of the market and the number of dealers of European securities would increase substantially. Competition among traders would be much higher - which is likely to result in more favorable and notably undistorted prices for securities. "Accordingly, a merger would be particularly helpful for smaller, less established companies, because they may raise capital easier than before," says IW Director Michael Huether.
In addition to companies, savers would also benefit from the merger. Savers would benefit from the merger even more, because the current low interest rate environment provides only limited opportunities for considerable returns on savings. "Stock portfolios are therefore a useful addition right now," says IW financial market expert Markus Demary. "The merger would allow savers to diversify their stocks thanks to the larger market."
Cross-border investments revive financial market integration and foster risk-sharing
The merger would support the political project of a Capital Markets Union in several aspects. Cross-border investment and cross-border asset holdings would increase, reviving financial market integration in Europe and fostering risk-sharing in case of country-specific shocks. The merger would provide the EU with a large financial market infrastructure and consolidate the nationally fragmented system of exchanges, clearing systems and securities depositories.
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