The future of financial services in Europe


Europe faces a decade of low growth, rising inequality in income and wealth, and decline or stagnation in workers’ wages, according to new research findings.

A wide-ranging survey of 50 business school economists about the future of financial services in Europe also found that the unregulated growth of the so-called ‘shadow banking’ (or non-bank financial) sector could cause another 2008-style financial crisis in the next five to ten years.

The economists were asked to make predictions on subjects including the future role, structure and regulation of the financial sector; the impact of the sector on society; growth and inequality in Europe; and the future remit and responsibilities of the European Central Bank (ECB) and of the central banks of developed countries.

The survey, part of the Financialisation, Economy, Society and Sustainable Development (FESSUD) research project led by the University of Leeds, found that the benefits of growth and employment of the financial system had been greatly overestimated prior to the 2008 financial crisis.

While Europe’s financial system would remain the same or grow in the next five to ten years, this would not translate into wider economic growth. Growth in the euro area is forecast to remain below 2% and rising unemployment, welfare cuts and austerity will contribute to greater inequality in society. 

The economists also predicted that there would be a slight or significant increase in inequality in income and wealth distribution in developed countries in the next five to ten years, while wage income as a share of Gross Domestic Product (GDP) would fall or remain unchanged.

Professor Malcolm Sawyer of Leeds University Business School, project leader of FESSUD, said: “The survey portrays a financial services sector in Europe continuing to grow, but with the benefits for the citizens of Europe being limited and likely negative.

"The person in the street will continue to see rising inequality, stagnating wages and sluggish growth, and the financial sector will continue to act as a drag on sustainable growth. 

“The findings on the growth of shadow banking in Europe are particularly concerning. As banks are further regulated, shadow banking will continue to grow with, at best, loose regulation. This along with the inherent fragilities of the financial system will increase instability and contribute to the next financial crisis. 

“The messages are clear: there has to be fundamental reforms of the financial sector, its scope and influence. It is time for the financial sector to serve society, and not society serving the interests of the financial sector.”

The survey shows that the role of the ECB is expected to change, with economists predicting that it would encompass generating real economic growth in addition to its chief objective of maintaining price stability in the Eurozone.

This broadening would be mirrored in the role of national central banks, which will also focus more on financial stability as well as inflation price stability and economic activity. There was consensus that the central banks of developed countries would retain inflation targets of around 2%. 

FESSUD is a €10m research programme funded by the European Union and led by Leeds University Business School and involves 14 business schools in Europe and South Africa.

The project has examined the dominance of the financial system over other parts of the European economy in the last 30 years and suggests reforms to support economic, social and environmental sustainability.

Key findings of the Future Expansion and Proliferation of Finance Delphi survey include: 

• The ‘shadow banking’ sector will expand due to poor regulation and as banks seek to avoid the impact of tighter regulations by conducting more activities off-balance sheet. This may lead to instability and a financial crash in the next five to ten years

• The number of small, locally-oriented savings banks and co-operatives will continue to fall or will be encouraged to adopt the business models of private banks

• Household savings rates will remain the same or be slightly higher than savings rates which were registered before the financial crisis of 2008

• The revival of household lending, mainly through mortgages, will pose a moderate or significant risk for the financial system

Paper author Jesus Ferreiro, University of the Basque Country, and Professor Giuseppe Fontana of the University of Leeds, said: “The finance industry has not learned the lessons from the global financial crisis, and deep reform is needed to make it more economically, socially and environmentally sustainable.”

Further information

Professor Malcolm Sawyer is available for interview. Contact Guy Dixon, Communications, University of Leeds, on: 0113 343 1028 or 07954 277 539 or

A copy of the paper ‘The Future Expansion and Proliferation of Finance’, by Jesus Ferreiro, Carmen Gomez and Jon Landeta, is available upon request.

Financialisation, Economy, Society and Sustainable Development (FESSUD) is a research project investigating the growth and impact of the financial system in Europe which suggests ways that the system might be reformed to support economic, social and environmental sustainability.

FESSUD is funded by a near €8m grant from the European Commission. The partners are: University of Leeds (UK, lead partner), University of Siena (Italy); School of Oriental and African Studies (UK); Fondation National de Sciences Politiques (France); Pour la Solidarite (Belgium): Poznan School of Economics (Poland); Tallin University of Technology (Estonia); Berlin School of Economics and Law (Germany); University of Coimbra (Portugal); University of Pannonia (Hungary); National and Kapodistrian University of Athens (Greece); Middle East Technical University, Ankara (Turkey); Lund University (Sweden); University of Witwatersrand (South Africa); University of the Basque Country (Spain).