Lagarde makes a case for ‘green’ capital markets union 

President of the European Central Bank (ECB) Christine Lagarde attends a joint press conference after a Eurogroup meeting under the Portuguese Presidency of the Council, in Lisbon, Portugal, 21 May 2021. [EPA-EFE/ANTONIO COTRIM]

The President of the European Central Bank, Christine Lagarde, on Wednesday (29 June) called for initiatives to create a capital markets union for sustainable finance.

Speaking during the Brussels Economic Forum, Lagarde expressed her concerns about whether private investors could help mobilise the massive volume of funds needed to spur the green and digital transitions. 

In order to tackle the national barriers that constrain investment, she urged progress on a ‘green’ capital markets union.

The European Commission made a series of proposals in 2015 to facilitate cross-border financial market operations in the EU. After years of disappointing progress, the Commission presented an action plan in 2020 to relaunch efforts. 

“As we have seen for few years, and I am sure we will see, it takes time” to build a capital markets union, in part because these markets were developed nationally, she explained.

Lagarde stressed that there is potential to make “rapid progress” on a ‘green’ capital markets union, since financial instruments such as green bonds have already reached a pan-European scale. 

The bloc tops the green bond market, accounting for around 60% of the global issuance in 2020, and the euro has taken the lead as the currency for ‘green’ finance, with around half of all green bonds issued globally in euros.

The ECB president explained that capital markets are better suited than banks to finance future oriented sectors, including green and digital, given the direct link they offer to finance well-defined projects or the option of innovative investment vehicles.

For that reason, Lagarde argued that some initiatives under the capital markets union action plan “should be fast tracked, even if they only apply to sustainable finance for now”, as they may set the standards for a larger capital markets union at a later stage.

In the priority list, Lagarde mentioned proper European supervision of green financial products with EU seals, including the EU green bond standard that the Commission will put forward next week. 

EU pushes for convergence of insolvency rules to support recovery

The European Commission is preparing a series of proposals to drive the capital markets union to facilitate the recovery from the COVID-19 pandemic. One of the most difficult battles will be reducing the differences between national insolvency frameworks.

She added that the bloc would need to harmonise the tax treatment of sustainable finance products to prevent national fragmentation, and further convergence in national insolvency frameworks, including the possibility of special procedures for ‘green’ finance. 

“Some of you may be sceptical, but it is worth giving it a try. Because if we succeed, it may not only accelerate the transformation of our economy, it will also act as an engine for the capital markets in general,” she stressed.

Green MEP Ernest Urtasun supported the idea of prioritising ‘green’ initiatives under the capital markets union package, although “there is a long way ahead of us”.

Speaking to reporters on Thursday, Urtasun added that there are some ideas being floated that MEPs wouldn’t support, including the possibility of lowering capital requirements for ‘green’ investment. 

EU banking regulator: 'No green economy if we encourage banks to be insolvent'

Europe wants to use all the tools available to transit toward a ‘green’ economy. But ‘green’ lending should not be incentivised by easing capital requirements for banks, the European Banking Authority chief, Jose Manuel Campa, told EURACTIV in an exclusive interview.

[Edited by Benjamin Fox]

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