Almost three years on from its launch, the Capital Markets Union needs renewed momentum to see it reach fruition and deliver on the promise of deep and well-integrated EU capital markets. Simon Lewis outlines why now is the moment to assess its progress so far.
Simon Lewis is the chief executive of the Association for Financial Markets in Europe (AFME), representing Europe’s wholesale financial markets.
As was highlighted by European Commission Vice President, Valdis Dombrovskis, last week, the future of Europe’s flagship project to boost intra-EU capital flows is in need of focus, energy and political support. Despite the progress that has been made to date, Europe’s capital markets remain fragmented along national lines and continue to lag behind the US, where highly developed capital markets allow businesses to easily access the capital they need to develop and grow.
The Capital Markets Union’s (CMU) overarching objective of creating a financial ecosystem which supports Europe’s businesses to flourish has been a long-standing priority for the EU. Some early successes such as the introduction of a new framework to reinvigorate securitisation markets and reforms of prospectus regulation, which made it easier for SMEs to list shares on stock exchanges, were a promising start. But to achieve the real step-change that is needed ambitious reform in areas such as creating a vehicle for pan-European pension savings and significant streamlining of insolvency regulation are also needed.
But with significant hurdles such as Brexit and European Parliament elections on the horizon, for major advances to be made there must be renewed political momentum to ensure CMU remains a priority. There is no doubt the departure of the UK from the EU poses the possibility of substantial disruption for Europe’s capital markets. But CMU will arguably become even more important after the UK, one of the EU’s largest economies, departs from the bloc.
Sustaining momentum on such a large-scale project is a challenge, so in order to keep focus AFME is proposing a set of measurable Key Performance Indicators (KPIs) for CMU are introduced, to track progress in key policy areas. Such indicators would aid politicians to prioritise what action and initiatives need to be pursued with the most urgency.
It is also important to understand the differences between member states in terms of how well developed their capital markets are. Such KPIs could also help to identify the countries which have the furthest to go versus those where their markets are more well-developed, and where lessons can be learned.
As the end of the current Commission approaches in October 2019, so too does its self-imposed deadline for having delivered the first stage of the CMU action plan. This is a tight and demanding timescale. But the scale of CMU’s ambition has always meant it would need to be a long-term project and 2019 should not be viewed as the end of the story. The next Commission must continue the good work done to date.
Launching new initiatives is just the start of the process. The project will continue to need political ambition and commitment to address the long-term strategic issues and barriers that restrict the flow of capital both from within and outside Europe. As the EU gears up for a new Commission from 2019, now is the time to push CMU to the top of the agenda, and steer it with renewed purpose and vigour. The need to do so has never been more important.