In 2006, European economy performed well with an economic growth of 3%, which was the highest since 2000. This is a sign that the economy is on the road to recovery and in fact most of the economic activities remained very strong through out the year. Domestic demand is reported to have risen sharply with an increase in private consumption and an increase in investment spending. All this have been attributed to an improvement in labour market, which is now recovering after unemployment rate fell to its lowest level in more than a decade. The economic growth in Europe has also been as a result of support from the high economic growth in China and other Asian countries.
Though Europe economy is on recovery, the central banks are gradually withdrawing liquidity from the European economy. This action which can be seen as an obstacle for economic recovery has been necessary because of the need to normalize monetary policy following very low short-term interest rates in the recent years. The central banks have therefore taken the action so as to contain the inflation pressure. However, this action by the central banks has not negatively affected financial and monetary conditions as indicated by the asset markets which are doing well. The equity market is however experiencing turbulences, an indication that investors' confidence has not been gained. However, the economic reforms that Europe is in the process of introducing gives hope that things will improve.
The integration of the Member-State financial systems is one of the recent macro developments in Europe. The integration has been done based on the fact that there is a link between economic growth and financial development. This is because when financial resources and risks are allocated well, the real sectors of the economy expands and develop. However, if the financial sector is constrained in ensuring that financial resources and risk are allocated efficiently, it result in the economy performing below the optimum level. Financial integration of the financial systems in Europe has helped to reduce fragmentation in financial sector. This integration has also greatly assisted the citizens. This is because cross border payment costs have reduced following financial integration of the financial systems. However, the financial systems have not been able to efficiently combine well which has resulted into differing opportunity costs between different economies. Therefore, there is still an unexploited opportunity to be achieved through integration of financial systems so as to help create more wealth and employment.