The concept of the European Union's Capital Markets Union (CMU) was unveiled by Jean-Claude Juncker on July 15, 2014, during his first speech to the European Parliament as the incoming president of the European Commission. This proposal was put forward during a time when the UK's relationship with the EU was marked by increasing friction, largely driven by the UK's alienation from ongoing European integration processes that were responses to the financial instabilities within the eurozone.
Juncker's proposal for the CMU aimed to reintegrate the UK into the EU framework by leveraging London's central position in European finance, thereby fostering a more unified European financial sector. This initiative was also strategically aligned with broader economic stability concerns from entities such as the European Central Bank, which underscored the need for deeper integration of capital markets across the EU. Such integration was seen as crucial for buffering the EU's financial systems against localized economic disturbances, offering a stabilizing mechanism that did not necessitate further fiscal unification.
However, the initial goals and policy frameworks of the CMU were ambiguously defined. The political necessity of maintaining good relations with London resulted in the CMU's focus being predominantly on minor regulatory adjustments rather than on substantial financial reforms. This approach seemed to undermine the foundational concept of a "union" of capital markets, which, by its naming convention, suggested a parallel to the more transformative banking union initiated two years earlier.
Jonathan Hill, who was the European Commissioner in charge of financial stability, financial services, and the capital markets union at the time, approached the project with a conservative strategy. He prioritized attainable, straightforward regulatory improvements—described metaphorically as "low-hanging fruits"—reflecting a period of minimal ambitious reform in the EU's financial regulatory practices, despite a backdrop of extensive financial sector reforms spanning the previous decade and a half.
Ten years after its inception, the CMU's substantial impact and transformative potential appear limited. The project continues to be extolled by EU and national leaders who emphasize its potential to strengthen EU's strategic autonomy, support environmental sustainability initiatives, and foster the development of cutting-edge enterprises. Despite these high expectations, the practical realization of these goals has been underwhelming, with actual legislative and policy action failing to match the rhetoric.
In terms of regulatory achievements, the EU has made some progress with initiatives such as the European Single Access Point for corporate disclosures, a consolidated tape for transaction data, and the European Long-Term Investment Funds. These measures represent progress but are consistent with the EU's historical pace of regulatory evolution rather than a radical departure or acceleration that the CMU had initially promised.
Efforts to achieve broader market integration through structural reforms in areas like taxation, insolvency law, or pension finance have been minimal and largely ineffective. The European Central Bank has explicitly acknowledged the scarcity of easy opportunities for further integration in these areas, indicating a challenging path ahead for achieving significant market integration under the current scope of the CMU.
The future viability of the CMU is uncertain, but there is potential for it to be revitalized through a more ambitious approach. One promising avenue could be the establishment of a unified supervisory mechanism akin to the U.S. Securities and Exchange Commission, which Christine Lagarde, the ECB President, has alluded to. This would entail significant enhancements to the governance and operational scope of the existing European Securities and Markets Authority, potentially transforming it into a more powerful regulatory entity.
The proposal for enhanced supervisory integration would involve substantial changes to the authority's governance structure, funding mechanisms, and possibly its geographic footprint, to facilitate more direct and effective oversight of the EU's capital markets. While a similar initiative failed in 2017, the conditions now may be more conducive to success, given the clear need demonstrated by the EU's comparative sluggishness in capital market dynamics and recent successful integrations in other areas of European financial regulation.
Achieving this could fundamentally transform the CMU into a meaningful and impactful project. However, if it is continually thwarted by nationalist sentiment and entrenched special interests, it might become necessary to reconsider the feasibility of continuing with the capital markets union rhetoric, marking a potential end to the project if substantial progress remains elusive.
15.04.2024
Comments