Despite general agreement on the technical solutions needed to implement the EU’s Capital Markets Union, political leadership has been sorely lacking for the last decade – but a recent flurry of action could finally see progress Mark Latham finds
Plans to create the European Union’s long-planned and long-awaited Capital Markets Union (CMU) took a step forward in April following backing from Europe’s funds body for a proposal that a small number of EU countries should press ahead with forging a CMU.
Efama backed the French proposal with its president Sandro Pierri quoted as saying it would be “better to have four, five, six… a good number of countries which are creating an alignment around this priority” than risk losing more investment to the US through disagreement and further delays to the project.
“The risk is that we’re going to be stalling in a situation which is going to be characterised by endless debate about what needs to be done, giving ever-increasing advantages to places like the US to capture part of the saving that Europe has generated,” said Pierri, who is chief executive of BNP Paribas Asset Management.
Efama’s backing follows comments from the French finance minister Bruno Le Maire who had called for three or four countries to press ahead with a capital union on a voluntary basis.
“I am fed up with discussions,” Le Maire was quoted as saying in February. “I am fed up with empty statements.” In an interview last month, French president Emmanual Macron said he feared the Europe is facing a “mortal threat” from economic stagnation and decline.
Plans for a EU-wide CMU were hatched as far back as the global financial crisis in 2008, in an attempt to deepen Europe’s capital markets, but progress has been disappointingly slow in the decade and half since.
Last month, plans for the CMU ran into opposition from a majority of EU member states, particularly smaller countries reluctant to hand over more power to pan-European regulatory bodies such as Esma.
Despite the lack of political agreement on how to tackle the bloc’s fragmented capital markets, a flurry of reports and statements in recent months points to progress accelerating.
In March eurozone finance ministers agreed a statement on advancing the CMU project, following the publication of a similar statement from the European Central Bank.
In addition, a report calling for the greater use of private capital to boost European economies also received the backing of Efama last month.
The report, by former Italian prime minister Enrico Letta, called for private capital to be mobilised to boost the EU’s capital markets union and single market by using “idle” savings to invest in the EU economy in a so-called “Savings and Investments Union”.
It also called for the EU and member states to introduce policy measures to boost a stronger investment culture across the bloc.
Letta had been asked by European leaders to examine the reason’s behind the EU’s underpeforming single market in his report.
Efama director general Tanguy van de Werve said: “Enrico Letta correctly identifies that when it comes to boosting EU capital markets, better connecting the real economy with European citizens’ savings will be a key driver of success.
“We now need bold actions from all stakeholders involved to turn that vision into reality.”
As Funds Europe went to press, a joint report from the European Banking Federation (EBF), Efama and the Federation of European Securities Exchanges (FESE) called for progress on increasing the competitiveness of European capital markets, with recommendations on how this could be achieved.
The report, authored by Oliver Wyman, concluded that there is an urgent need to stimulate demand and supply side steps for capital markets by improving retail investors’ access to attractive products, enhancing financial literacy, incentivising retirement savings, and creating tax structures conducive to long-term investment.
Magnus Burkl, head of Capital Markets Europe at Oliver Wyman, said: “Our research reinforces our belief that European Capital Markets are well-functioning but performing below their full potential.
“To reach its full potential, Europe needs to activate long-term capital pools across retail and institutional investors, which can act as a flywheel for increasing the competitiveness of capital markets.”
FESE director general Rainer Riess said: “Europe needs deep and liquid capital markets to finance its companies and deliver attractive valuations.
“Cutting red tape and getting citizens to put their investments into capital markets are key to unlock the flywheel.”
Wim Mijs, EBF chief executive, said: “Developing vibrant and competitive European capital markets is crucial to harness the necessary financing power to usher in true economic transformation in the EU.
“With Brussels and EU member states attentively listening, the momentum for change is palpable.”
This article was first published in the May / June 2024 issue of Funds Europe
