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The EU's capital markets have made great progress in recent decades. However, they are still significantly less integrated than markets for industrial goods or labor. And that means they fall short of what the EU needs.
Opportunity costs
This situation entails huge opportunity costs: lower potential economic growth, less resilience to economic shocks and less choice of financial products for EU citizens. And there are more opportunity costs, for example there is less capacity to finance the transition to a climate-neutral and digital future. The capacity for innovation is also lower due to a lack of financing options for riskier projects that require direct sources of financing from the capital markets. In the coming decades, there will most likely be fierce competition between economies for innovative high-tech industries. If the EU cannot keep up in the innovation race, it will fall behind. Therefore, the development and integration of EU capital markets is of utmost importance for the future of Europe. All of this means that the Capital Markets Union is not just a “nice-to-have” but a “must-have” for Europe – it is vital that we remain ambitious on this urgent matter.
Why is progress so slow when there is so much at stake? Often the answer is political will. Market integration, for example, requires a series of specific and technically complex measures, making it difficult to develop an engaging narrative. Self-interest presents a further challenge, as the benefits of market integration are typically large but still diffuse, while the costs are more concentrated and therefore easily brought to the attention of national governments. In addition, competition between Member States for the location of financial service providers makes matters even more difficult.
Renewed dynamics
It is encouraging to see the recent momentum of the political debate on the Capital Markets Union and the support expressed at high political levels. And the Commission is starting its own internal reflection on possible future measures. While the new Commission will set out the specific priorities later this year, I believe they should reflect the need for our capital markets to increase in size and liquidity to become more efficient and competitive. This means that we must be cautious about calls for a greater national focus in the approach to EU capital markets – the so-called “bottom-up” approach. Although this approach has its merits, national characteristics are very often a source of fragmentation rather than an opportunity. The Capital Markets Union must be a large and developed capital market for the entire EU and not a collection of individual national markets, however developed they may be. Therefore, when building an EU internal market, we need to focus on the fundamental features that characterize any internal market – for example, common insolvency law, common tax procedures, common supervision, common accounting standards and common company laws.
If we keep these considerations at the forefront and leverage the current political momentum in favor of the Capital Markets Union, we will be able to deliver changes that make a real difference, benefiting markets and the economy as a whole and, most importantly, all EU citizens.
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Capital Markets Union
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