Bank Credit in the EU: Long-run Independence or Integration with Germany?

Abstract

This study examines the long-run role of Germany in the determination of bank credit in the EU. For a sample of nine EU members, the Johansen procedure is employed to test for common trends and bivariate cointegrating relationships with Germany. Long-run causality is investigated through tests which are based on the speed of adjustment towards long-run equilibrium. Long-run equilibrium relationships with Germany are identified in most cases. However, the results lend limited support to the German dominance hypothesis since credit provision appears to be more interactive in nature.