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.
The integration process fosters competition, the expansion of markets and intermediation, thereby complementing and leading to further financial development. Financial development, in turn, leads to lower intermediation costs and a more efficient allocation of capital. Allocating resources to the most productive investment opportunities ultimately increases the potential for greater and more sustainable non-inflationary economic growth.