The Capital Markets Union (CMU), an ambitious plan aimed at unlocking funding for Europe’s growth, has long been a central topic on the political agenda. However, establishing a single financial market for capital across the continent remains a challenging task. This issue is set to persist under the next European leadership.
A New European Parliament and Its Priorities
This week, citizens across 27 European countries are heading to the polls to elect new members of the European Parliament. Following the elections, the first task of the newly appointed parliament will be to elect its president, a decision that will significantly influence the direction of the CMU initiative. The key question is whether the new European leadership will continue to support the vision of a unified capital market and muster the political will necessary to achieve it.
The Genesis and Evolution of the CMU
The Capital Markets Union initiative was launched by the Jean-Claude Juncker Commission in September 2015. The first action plan laid out more than 30 steps aimed at creating the foundations of an integrated capital market within the EU by 2019. Fast forward to June 2024, the broader goal of establishing a single market for capital, facilitating seamless investment and savings flows across EU borders, remains unfulfilled.
The Need for a Capital Markets Union
Mairead McGuinness, the current EU Commissioner for financial services, financial stability, and the Capital Markets Union, highlighted in a Financial Times article that the EU currently lacks sufficient financial options for home-grown companies within its own capital markets. Consequently, these companies often seek financing elsewhere. A notable example is Birkenstock, the German footwear brand, which chose to list on the New York Stock Exchange rather than in Frankfurt, Paris, or Amsterdam. This scenario underscores a critical problem that the CMU aims to address.
The Competitiveness Challenge
McGuinness has also emphasized that Europe lags behind the US and China in capital markets, limiting the growth, innovation, and job creation prospects for European companies. Without a robust and unified capital market, European firms face significant hurdles in accessing the resources they need to thrive within the EU.
Obstacles to Progress
Despite numerous regulatory measures being agreed upon, the progress of the Capital Markets Union has been hampered by national interests. While France and Germany have shown strong support for the CMU, several other nations remain hesitant to cede more control to Brussels. Concerns about additional costs to their national finance industries contribute to this reluctance. Consequently, financial systems across the EU remain fragmented, and country-specific laws continue to obstruct cross-border funding.
The Path Forward
To make cross-border investing more accessible, investment and insolvency rules need to be unified. National government leaders must agree to these changes, demanding the same level of political determination that facilitated the creation of the European single market in 1993. The future of the Capital Markets Union depends on overcoming these national interests and aligning on a unified vision for Europe’s financial future.
Conclusion
As Europe awaits the outcome of the elections and the subsequent appointments in the European Parliament, the fate of the Capital Markets Union hangs in the balance. The ability of the new leadership to galvanize political support and address the existing barriers will be crucial in determining whether Europe can achieve its goal of a single, integrated capital market.
