The Center Still Holds: Financial Integration in the Euro Area

We employ cross-country variance tests using quarterly data over 2002–2013 to analyze the effect of the global financial crisis on euro area financial integration. Dividing the 12 core euro area countries into two groups, the euro center and the euro periphery, we investigate variances of the estimations across these two groups before and after the onset of financial crisis. We find a significant change in variances in a sample that includes both groups but no such change within just the euro center group. Using data for new euro area members, no significant changes in variances are found in these countries. Although the difference in variances appears to get smaller, financial integration within the euro area remains differentiated, with the center still holding.