Europe’s failure to complete its capital markets integration carries a measurable economic cost of around 150 billion euro per year in lost investment, according to a new report from the Citi Institute. Over a ten-year period, the drag on economic growth could amount to roughly 1.5 percent of GDP.
The findings add urgency to the long-running debate over capital markets union in Europe. While policymakers have discussed financial market integration for more than a decade, the report argues that fragmentation in post-trade infrastructure, regulation and taxation continues to undermine Europe’s competitiveness and its ability to retain domestic savings.
The report is based in part on a survey of banks, custodians, asset managers and institutional investors. It finds broad agreement that Europe’s capital markets remain only partially harmonized. Some 63 percent of respondents cite significant gaps in regulation, policy, taxation and operational processes that still need to be addressed, while only a small minority believe that most barriers have already been removed.
Market participants also appear realistic about the pace of change. Nearly two-thirds of respondents expect meaningful harmonization to take between five and ten years, reflecting both the technical complexity of reform and the persistence of nationally organised market structures.
Cost of market fragmentation
Citi’s findings align with a broader diagnosis from the European Central Bank on the economic cost of fragmentation within Europe’s internal market. In an August 2025 study, the ECB concluded that while the EU Single Market has delivered substantial gains since its launch, significant untapped potential remains due to persistent regulatory, administrative and enforcement barriers. The ECB explicitly identified incomplete financial integration, including the absence of a fully realised capital markets union, as one of the structural obstacles limiting investment, productivity and resilience.
According to Citi, fragmentation has direct economic consequences. Europe’s capital formation continues to lag behind that of the United States, with lower IPO activity as a share of GDP and higher post-trade costs weighing on investment. Complex national frameworks and limited cross-border liquidity are cited as factors pushing European savings abroad. The report estimates that hundreds of billions of euro in household savings flow out of European markets each year, largely towards the United States.
Addressing this will require action on multiple fronts, according to Ronit Ghose, global head of Future of Finance at the Citi institute, in a separate commentary to Investment Officer. “A concerted effort is required to address fragmented European capital markets,’’ he said. “Politically, this necessitates member states prioritizing collective benefits over national interests, specifically by harmonizing withholding tax systems and insolvency laws, and embracing centralized regulation to mitigate regulatory divergence. Economically, a fundamental simplification of market infrastructure, including the consolidation of Central Securities Depositories and enhanced transparency in fee structures, is essential to foster competition and realize economies of scale.”
Political harmonization
Citi argues that tangible progress does not require waiting for full political harmonization. According to Marcello Topa, global head of advocacy for investor services at Citi, priority should be given to deeper coordination of settlement services across Europe, including wider and more consistent use of Target2-Securities, the ECB-run platform that allows securities transactions to be settled in central bank money across borders.
Topa also points to the need for more open and transparent competition among market infrastructures such as central securities depositories, which often operate in quasi-monopolistic national settings. Greater legal certainty, including closer alignment of corporate, insolvency and tax rules, would further support cross-border asset servicing and investment activity. Given the long timelines associated with full harmonization, Topa said interim solutions such as the proposed “28th regime”, a single optional EU legal framework alongside national regimes, and the possibility of centralised issuance facilities across asset classes could help unlock efficiency gains sooner.
Citi argues that any serious effort to deepen European capital markets should extend beyond the European Union. Integrating major financial centres such as the United Kingdom and Switzerland, Citi said, would reduce duplication, harmonize due diligence requirements and support a more liquid and competitive market environment.