The Capital Markets Union (CMU) is the EU’s ambitious plan to create a common market for capital. The aim is that savings and investments can move freely in the EU and so consumers, investors and companies benefit from it, no matter where they are located.
The Capital Markets Union is essential for the EU to achieve its political goals of sustainable development, digital leadership and innovation. But the Capital Markets Union is even more important in the context of the economic recovery from the Covid 19 crisis: We have to attract substantial amounts of capital from the EU and from outside the EU. Three things are important for this:
The participation of private investors in the capital market must increase – while maintaining an appropriate level of investor protection. A necessary condition for increasing the number of investors is access to simple and understandable financial instruments.
There are already financial education programs in place in many countries that are quite effective. But additional measures on the part of the EU institutions would certainly be helpful. It is important to promote a new European equity culture, including the development of real pan-European offerings like the European Pension (PEPP).
A better comparability of the information about the development of costs and returns of the various financial products is also necessary. Qualified consultants are also required. At the same time, it should be clear that the aim of protecting investors cannot be to influence them and prevent them from making decisions: overregulation could have counterproductive consequences.
Investors might find it useful to have a single (digital) place where they can get financial and non-financial information about companies they want to invest in – and also a place where they can check the market prices of those companies.
You don’t learn anything about this from the market itself, so public support is necessary. The creation of a single EU access point for financial and sustainability information about companies is very welcome. This place must contain comparable and standardized information in digital format.
We need proportionality in regulation and supervision. Businesses start small and grow big. We need simplifications, harmonizations and codifications of the regulatory texts at EU level. We also need to create more clarity for the benefit of market participants.
At the same time, a more efficient convergence of supervisory practices needs to be achieved. A more integrated system of capital market supervision would be useful. It is too early to have a single supervisor at EU level, but it is also too late to have supervision only at national level.
We must be prepared for the scenario of increasingly important financial transactions being monitored at EU level based on criteria such as size, transnational activities, large or small investors or cross-border contagion risks.
After the Action Plan for the Capital Markets Union was presented by the EU Commission in 2015, there were two breaks: Brexit and Covid-19. But I believe that both are challenges that only reinforce the need for the Capital Markets Union.
Brexit brings a dramatic change, because the largest European financial market is leaving the EU; at the same time it is an opportunity to strengthen the EU dimension of market infrastructures, intermediaries and investors.
Covid-19 harbors another dramatic change. We have seen an extraordinary collapse in the markets – and a transformation. Still, there are opportunities for supply (the unprecedented amount of funding made available by fiscal and monetary policies) and demand (companies will need refinancing to offset their debt).
I believe that the Capital Markets Union will not come without an impetus from the highest EU level, from the Commission, Parliament and the European Council, as well as from the European Central Bank and the European supervisory authorities.
The EU’s new CMU Action Plan, published in September, is more than welcome. The European Parliament and its Economic and Financial Committee clarify what can be achieved.
We need a coordinated plan, if possible for the meeting of the economic and finance ministers (Ecofin Council) on December 1, which contains a binding schedule and rigorous control options. Once things get going, deals will be made and there will be growing trust.
More: Read here why European politicians warn the EU against interfering with lending.