By Agnès Le Thiec

To many, particularly those not working in the financial sector, the capital markets union (CMU) initiative may seem like an elusive project. Why should it matter to me as an individual or as a company? Besides, the initiative was launched seven years ago in 2015, and completing it still seems out of reach. So what has been done so far? And what remains to be done?

What is the CMU and why does it matter?

The CMU is the EU’s plan to create a single market for capital. While each EU Member State has its own capital market (e.g., its own public exchange, its own community of investors and financial intermediaries, like investment banks, insurance companies, etc.), the aim of the CMU is to make them work as one. In doing so, the CMU should increase the joint scale and strength of EU capital markets and help EU companies, from start-ups to large ones, get better access to finance for their projects, which would support EU growth.

The way to achieve this is by removing (or at least lessening) the barriers stopping the flow of capital across Member States. The nature of these barriers can, however, differ. Some of them stem from differences in laws and how these laws are supervised and enforced. Others relate to more complex issues, such as differences in business practices driven by long-established customs and ways of working.

To put it plainly: the aim of the CMU is to get money – investments and savings – flowing across the EU so that it can benefit consumers, investors and companies, regardless of where in the EU they are located.

Alongside the banking union, the CMU is the most important pillar of the EU’s economic agenda. There is no strong economy and no strong Europe without large, vibrant and well-integrated capital markets.

Why is that?

• Deep, integrated and well-functioning capital markets can provide businesses with a greater choice of funding at lower costs. Since they can help smaller companies to get off the ground and later expand, and larger companies to thrive, they will be essential to support sustainable economic growth post-Covid-19.
• With the right protections, a CMU will allow retail investors to take full advantage of capital markets and make the most of their money. At a time when our society is facing economic and social challenges, notably the ones posed by Europe’s ageing populations, the CMU can help to make the EU economy more inclusive and resilient.
• Large and well-functioning capital markets will be instrumental in generating the massive private investments that are needed to achieve the green and digital transitions of our economy. These are the challenges of our time, and we won’t be able to meet them without sufficient private capital.
• A strong, competitive and integrated financial system is the backbone of a robust and vibrant economy. Capital markets are not only needed to finance established companies, but also the champions of tomorrow. In today’s world, we cannot afford to rely on key financial services provided outside the EU. The CMU will enhance the EU’s open strategic autonomy and its global economic role. It will strengthen confidence in the euro.

What has been done so far?

Since the initiative was launched in 2015, the European Commission has issued two sets of measures to build the CMU. First was an action plan in 2015, complemented by a mid-term review in 2017. Together, they yielded more than 60 legislative and non-legislative actions. Second, the Commission set out a new set of measures in its 2020 CMU action plan.

On 25 November 2021, one year after the 2020 action plan, the Commission adopted a CMU package with four legislative proposals. These proposals, which represent an important step in the implementation of the 2020 action plan, will:

• attract and protect investors
• improve their access to company and trading data
• increase sources of financing and make it easier for all – but in particular smaller – businesses to find funding
• steer investments towards our sustainability and digital priorities
• boost Europe's global competitiveness as a place to invest and do business

How? Firstly, investors need access to public information about EU companies and investment products to make sound decisions. This information is now scattered across Member States. The new European Single Access Point will allow investors to find this data easily in one place, on their computer screens. This will create more funding and business opportunities, especially for small companies in small capital markets.

Then, we need long-term investment to support our economy during the recovery, invest in infrastructure, climate and energy projects as well as in new technologies. We will therefore support more and larger European long-term investment funds.

In parallel, we will make the market for alternative investment funds more efficient and integrated. It should provide our companies with alternative sources of funding.

Lastly, we will improve market transparency and make it easier for all investors to have a consolidated view of trading data.

Is it the end of the road?

The CMU is a long-term project. We know that there has been insufficient progress on some issues, notably on several deep-rooted structural barriers driven by history, culture and traditions. It will take time to tackle them. Building the CMU will require high ambition and political courage from Member States, as well as continuous support from the European Parliament. It will also call for patience and perseverance.

Yet under the current circumstances, more so as we are recovering from the crisis, moving ahead on the CMU is not a luxury – it is a necessity. We need the CMU to deliver on our main political objectives: sustainable economic growth, green and digital transitions, a resilient economy, global competitiveness of European firms and the EU’s open strategic autonomy. We need it for the better future of our children.

Read more about the capital markets union and the recent CMU package

Agnès Le Thiec is a policy officer working on the Capital Markets Union project in DG FISMA