The world is now a full decade beyond the great financial crash that saw sub-prime lending tear into global financial services and morph into Europe’s sovereign debt crisis.
However, in the decade since then the regional economy of Europe has only registered growth above 2.0% for 34 months or 28.3% of the time. In contrast, the U.S. has enjoyed growth over 2.0% for 75 months, i.e. 62.5% of the decade.
Banking is at the heart of any free market economy and the crisis highlighted the existing relationship between financial systems and the real economy. The EU financial landscape is highly diverse with each country applying its own separate framework as to how their respective financial system relates to the real economy.
European and American banking systems diverge
Banks and the business of lending to the private sector occurs via the capital market and straight forward bank lending. Due to the shift towards markets in the U.S. from the 1990s onwards and the tilt toward bank loans in the EU post the launch of the Euro in 1999 one can see a dramatic difference in the two banking systems. That gap has steadily widened over the past decade.
The capital markets have proven to be a more efficient means for larger corporations to raise finance whereas smaller concerns prefer bank loans. Whilst the economy in Europe remains lacklustre there appears to be a limited prospect…