European Financial Integration and the Financing of Local Businesses in the New EU Member States

This paper explores the degree of financial market integration between the new and old EU member states. It also considers the likely effects of the ongoing integration process on the new members' financial sectors. In particular, the paper discusses the implications of the high concentration of financial services and the dominance of foreign-owned institutions for the provision of financial services to small and medium-sized enterprises (SMEs) in the ten accession countries. Using enterprise data on 2,427 firms, the paper finds that access to finance still constitutes a major problem for business development and that financing conditions are considerably more difficult for SMEs than for larger entities