04 November 2019

Financial Times: Can the EU’s failed Capital Markets Union be revived?

According to the EU’s 2015 plan for Capital Markets Union, the financial markets of EU member states should soon be working in harmony to “unlock funding for Europe’s growth”. CMU, conceived to reduce the EU’s reliance on bank borrowing in the aftermath of the financial crisis, was meant to be complete by the end of next month.

There are two snags. First, EU growth is anaemic (now barely 1.5 per cent). Second, the target of weaning companies off bank loans and bolstering the issuance of shares and bonds instead, has been an embarrassing failure. While some legal reforms needed for CMU are in place, others are not, ensuring that even if the road map to deliver the project were credible, the EU has become lost along the way.

Brexit, which will strip the EU of its key financial centre, can only make matters worse, at least in the short term. No wonder some of the EU’s key economies have been trying to shock the CMU project back to life. Last month, a “high-level” group representing France, Germany, Italy, Spain, the Netherlands and Poland made some radical-sounding recommendations to boost European financial markets. The so-called “Next CMU High-Level Expert Group” called for a “massive” boost to equity markets, an enlargement of local investment opportunities, more “financial flow fluidity” and a push for the euro as a global currency.

If the 2008 crisis highlighted the dangers of untrammelled global markets, the new European Commission would do well to reflect that the opposite reflex, isolationism, is not only inefficient but produces more concentrated risks of its own. An ineffective CMU is one thing. A counterproductive one is quite another.

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