On 24 September 2020, the European Commission put forward a new action plan to establish a capital markets union (CMU) in Europe. CMU, which is a cornerstone policy project for European integration and a prerequisite for more sustainable economic growth, is more important than ever in light of the COVID-19 crisis. The CMU action plan aims to create a deep, single market for capital, which would help channel savings where they can do the most good – to finance recovery, create new jobs as well as help people accumulate adequate savings for retirement. By mobilising and channelling private investments, deeper capital markets will help the economy adjust to sustainability and digital challenges and preserve Europe’s global competitiveness and autonomy. A fully functioning and integrated market for capital will allow investors, savers and companies to access a full range of competitive and cost-efficient services and products, regardless of where they are located.

Progress in challenging times

The capital markets union initiative was launched in 2015 with the first CMU action plan. The plan has already brought about positive developments in European capital markets. For instance, possibilities for a wider use of EU passports so that EU products and services can be more effectively offered across Member States. Among such developments are the upcoming creation of a pan-European Personal Pension Product, new rules for simple, transparent and standardised EU securitisations, and the establishment of a new EU framework for covered bonds. However overall, EU capital markets still remain underdeveloped and not yet sufficiently integrated.

The COVID-19 pandemic has highlighted the importance and urgency of CMU. Public support and bank loans helped businesses address the short-term liquidity squeeze caused by lock-downs and reduced spending. However, to sustain the recovery in the medium and longer-term and return to economic growth, businesses will need market financing. Given the rising debt levels, re-equitisation of European industry, facilitated by CMU, is therefore essential. Market financing will be the lifeblood that sustains recovery and growth.

With Brexit, we will see the largest financial centre in Europe no longer regulated under EU law. EU capital markets now consist of multiple financial centres of varying sizes and specialisation. So, the new action plan should help EU capital market further develop and integrate in order to better support businesses and citizens. A truly single rulebook and effective supervision will be crucial to improve the functioning of capital markets.

In a world where major powers can use financial markets to pursue unilateral foreign policy objectives, EU influence in shaping international rules and standards depends on the development of strong domestic markets. Regulatory independence and democratic accountability require the development of domestic markets that allow investors, savers and businesses to benefit from competitive services across the full range of markets and products. This is why a strong and complete CMU is so important. It means reducing reliance on certain strategic infrastructures that are located outside the EU. It also goes hand in hand with the promotion of a stronger international role of the euro and an effective policy to protect the EU against extra-territorial effects of measures taken by non-EU countries.

Remaining barriers

Creating the CMU that Europe needs takes time. The barriers that remain – often shaped by history, customs and culture – are deep-rooted. So, building CMU and tackling barriers to the free movement of capital will have to be a gradual process, taken one step at a time. It will require commitment, cooperation and determination from all parties, especially Member States.

To inform its strategy on CMU, the Commission gathered a High-Level Forum on capital markets union, which published an extensive report in June, with targeted recommendations to follow up on. The forum, which was set up in November 2019, brought together 28 high-level industry executives, experts, consumer representatives and scholars. The Commission also consulted more broadly, through a call for feedback on the forum’s 17 recommendations, to get views from all stakeholders.

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