A few years ago some researchers showed that the US capital markets smoothes 39% of the shocks to gross state product (that is equivalent to our GDP), 23% to credit institutions and 13% to the federal government. 9 25% of the shock is not smoothed. Hence, in the United States, financial markets and financial institutions contribute 62% to the absorption of state idiosyncratic shocks.
The effect is substantially higher than the effect of the federal budget. While in Europe the supranational budget plays a different role, we expect European financial markets to move in this direction. Furthermore, by making markets deeper and more liquid, financial integration creates economies of scale and increases the supply of funds for investment opportunities.