The European Commission, from the beginning of its mandate in October 2014, has made it clear that the priorities are to strengthen the European economy and stimulate investment in order to create jobs. In this context, Jean-Claude Juncker, supported by the Council and the European Parliament, launched the European Fund for Strategic Investment (EFSI).
In line with the objectives of the new European Commission and the proposals of the President of the European Commission, it is the responsibility of Commissioner Hill to lead the creation of a Capital Markets Union (CMU) for the 28 Member States, the roadmap was published in late September.
It should be recalled that the free movement of capital is one of the fundamental pillars on which the European Union was created. But, despite the progress made over the last 50 years, European capital markets continue to be relatively underdeveloped and fragmented.
The comparison with the figures of the US are a good example of this, although the size of the two economies are similar, it is concluded according to date of the European Commission that European equity markets are half the Americans; like our debt markets, which are a third of those on the other side of the Atlantic.
Moreover, it is noteworthy that the differences between the capital markets of both economic areas are lower than those between the Member States of the European Union. It is clear therefore that further integration of the capital markets will result in greater efficiency and strengthen Europe’s capacity to finance growth.
While funding from the banking sector in the EU represents around 70% and the non-banking sector accounts for 30%, in the US they have the opposite reality. Hence greater integration is required in capital markets, which would lead to new alternatives and complement the traditional form of bank financing in Europe.
The European Commission has made clear what will be the main benefits we can expect from the Capital Markets Union. First, unlocking higher levels of investment in the EU and around the world. With this, the CMU will help mobilize capital in Europe and channel investment to all those companies which need it, particularly SMEs.
Another advantage is that CMU will lead to a better connection between the financing of innovative projects throughout the EU. So, those Member States whose markets have a great growth potential will benefit from increased funding, while those with more developed securities markets may take advantage of greater cross-border investment giving a greater possibility to diversify.
Third, further integration in capital markets can help Member States, particularly those that are inside the euro to cope with market volatility. Again, thanks to the CMU, we will achieve a more stable financial system and reduce the excessive dependence on the banking sector.
Finally, it will deepen financial integration and increase European competitiveness. Thanks to greater risk sharing across borders, more liquid markets and more diversified sources of funding, we will have deeper financial integration which will reduce costs and increase European competitiveness.
On 2 December 2015, the Permanent Representatives Committee (Coreper) approved, on behalf of the Council, a negotiating stance on proposals aimed at facilitating the development of a securitisation market in Europe, this is the first step towards creating the CMU. This agreement, led by the Luxembourg presidency, will enable the incoming presidency to start talks with the European Parliament as soon as possible in 2016, when the Economic and Monetary Affairs Committee of the European Parliament will start negotiating its position with respect to these initial proposals.
In conclusion, the Capital Markets Union will strengthen the link between savings and growth. It will lead to greater choice and better returns for savers and investors and businesses, particularly SMEs, which may benefit from more financing options in different stages of their development.
The CMU is a step forward in the Economic and Monetary Union, it will help consolidate economic recovery and it will be a source of opportunity for the future of the European Union. It is now responsibility of the European Commission, European Council and European Parliament to reach an agreement during 2016.