A plan to unlock funding for Europe’s growth has been high on the political agenda for more than a decade although delivering a single financial market for capital across the continent is no easy task.
Citizens across 27 European countries are going to the polls this week to elect new members of the European Parliament, which will then proceed to appoint its president as its first action after the elections on 6-9 June.
The question is: Will the new European leadership share the same view on a Capital Markets Union – and will there ever be enough political will to see its fruition?
For wider context, the Capital Markets Union (CMU) initiative was launched by the Jean-Claude Juncker Commission, which adopted the first CMU action plan in September 2015. It set out a list of more than 30 actions to establish the building blocks of an integrated capital market in the EU by 2019.
Fast forward to June 2024, the bigger picture plan for the CMU – to create a single market for capital in the whole territory of the EU with investments and savings flowing across its borders – is yet to be achieved.
Why is a Capital Markets Union needed?
Mairead McGuinness, the current EU commissioner for financial services, financial stability and capital markets union, said in a Financial Times article in March this year that the EU currently doesn’t offer home-grown companies enough options for finance from capital markets.
As a result, they are going elsewhere. For example, Birkenstock, the German footwear brand, decided to raise funds by listing itself last year on the New York Stock Exchange, instead of an exchange in Frankfurt, Paris or Amsterdam.
It is just one example of a big European company that has had to go overseas for what it needs to find finance and resources. A problem McGuinness said needs to be addressed.
McGuinness has also widely highlighted how Europe is lagging behind the US and China on capital markets, which in turn is limiting the prospects for European companies that want to grow, innovate and create jobs in the EU.
What is holding Capital Markets Union progress?
Whilst many regulatory measures have been agreed, member states’ national interests have prevented the CMU plan from moving forward.
France and Germany have shown support for the CMU whilst a number of nations are reluctant to hand more control to Brussels with many countries concerned about the additional costs for their national finance industries.
As a result, financial systems across the block remain fragmented and country-specific laws continue to hinder cross-border funding.
Essentially, investment and insolvency rules need to be unified to make cross-border investing easier. As such, national government leaders will need to accept this in order to make the CMU happen at all, which will take the same level of political will that created the European single market in 1993.
