Unpacking the CMU plan: Who will really benefit?

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

Analysts are worried transaction taxes could curb the benefits of capital markets union. [Shutterstock]

The European Commission’s plan for a Capital Market Union (CMU), brought the false promise of growth by supporting small and medium-sized businesses. In reality, it serves the interests of big investment banks, write a coalition of NGOs.

The following opinion article is signed by a group of NGOs comprised of Friends of the Earth Europe, Global Witness, Action Aid and SOMO.

The European Commission released its Action Plan on Capital Market Union (CMU) on Wednesday (30 September). This initiative claims to serve growth and jobs, with a particular focus on small and medium-sized enterprises.

It is a false promise. In reality, the Commission’s proposal is designed to serve the interests of big investment banks and private equity funds, enabling them to become more competitive on the global stage, with major risks to the people and environment of Europe, and beyond. A group of NGOs issued a statement on the CMU regarding overall criticism, which is also supported by the undersigned organisations.

The CMU was supposed to be the last piece of the EU’s policy response jigsaw, following the financial crisis. But the package launched last week appears to have learnt no lessons from 2008. It promotes the expansion of relatively unregulated private capital rather than banks; it revives securitization rather than focusing on the real economy, the one creating jobs; and it commits to further deregulation of the financial sector. Tens of millions of people across Europe are still reeling from the consequences of that previous crisis in their daily life – unemployment, low wages, erosion of labour and social rights, and rising inequality. Why would we want our decision makers to simply pave the way for the next one?

Our organisations – working for human rights, social and economic justice, and environmental protection – have been calling upon the EU to strengthen financial-focused regulation to ensure investors don’t contribute to or incentivize human rights violations, environmental or climate degradation, and land grabbing, in the Global South. The Commission’s Action Plan for the CMU appears to have the opposite intention. Environmental and social requirements imposed on investors are sidelined, relevant only in a specific financial product called “Green Bonds.” This lack of mainstreaming environmental, social and governance risk management in everyday corporate operations is in stark contrast to recent progress such as Non-Financial Reporting Directive and the European Parliament’s proposals for the Shareholder Rights Directive, whereby shareholders have to monitor social and environmental performance by their investee companies. Even worse, the

CMU is also likely to undermine important financial reforms processes such as the long-awaited separation of risky capital markets activities from basic banking, and a financial transaction tax.

Our four organisations are very concerned that the sidelining of environmental, social and governance issues, combined with the CMU’s promotion of the relatively unregulated private and market-based finance over the formal banking sector, and overall approach of financial deregulation, creates significant risks of increased adverse impacts on land, environmental and human rights. We already see substantial European private investors, asset managers and other financial services involved in landgrabbing overseas, and believe the solution to this problem is greater regulation of the sector, not less.

But, it is not too late. The European Parliament and 28 member states have key responsibilities now to shape the future of the CMU and to ensure that the initiative is not further undermining tools to serve the real economy, sustainable development and human rights, both in Europe and in the world. We urgently need legislative proposals against financial instability, as well as halting investments that are harmful for social and environmental developments, not another false solution to the economic and financial crisis.

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