EU Ministers Propose Voluntary Single Capital Market to Enhance Competitiveness

Today's Eurogroup meeting may see a significant proposal put forth by the ministers of Economy and Finance from several eurozone countries: the creation of a single capital market on a voluntary basis. The objective behind this proposal is twofold: to enhance the competitiveness of the European Union (EU) and to address concerns raised by certain members, notably led by Germany.

France, spearheaded by Finance Minister Bruno Le Maire, is championing the concept of a multi-speed capital market. The proposal invites European countries to join the European capital markets voluntarily, aiming to foster integration where progress might be challenging within the broader framework of the EU.

The Capital Markets Union, as envisioned by the European Commission, seeks to facilitate the flow of investment and savings across the Union, ensuring benefits for consumers, investors, and businesses regardless of their location. Despite the EU's historical trajectory towards this goal since the Treaty of Rome in 1957, the creation of a true Capital Markets Union remains elusive.

The initial action plan, approved by the Commission in 2015 under Jean-Claude Juncker, failed to materialize fully. Subsequently, a new action plan was adopted in September 2020, emphasizing support for economic recovery, investment boost, and the integration of national capital markets into a single market.

One of the pivotal aspects of the proposed European capital markets union is supervision by the Paris-based European Securities and Markets Authority. However, this proposal has sparked reactions not only from Berlin but also from Luxembourg, the eurozone's main investment funds hub.

While supervision is a complex step, other measures such as the creation of cross-border savings products or tax harmonization could be more straightforward. The European Commission is expected to propose such measures to promote cooperation among member states.

The overarching aim of the Capital Markets Union is to enable European companies to access necessary funding without resorting to non-EU markets, particularly the United States. This initiative seeks to reduce transaction costs, enhance market transparency, and promote equity financing, ultimately strengthening the EU's international competitiveness.

The EU's commitment to a unified Capital Markets Union aligns with the directives outlined by former Italian prime ministers Mario Draghi and Enrico Letta to bolster the Union's competitiveness. According to Letta, the annual diversion of around €300 billion of European household savings from EU markets to the US economy underscores the urgency for a Savings and Investments Union.

European Council President Charles Michel underscores the importance of the Capital Markets Union in channeling the EU's vast private savings into domestic businesses, thereby reducing inflation and fostering economic growth.

While the precise roadmap for the Capital Markets Union is still unfolding, cooperation among a smaller group of member states could pave the way for reducing fragmentation and bolstering the EU's position in the global market.

By fLEXI tEAM