The EU’s financial services chief has warned that its flagship project to boost private sector investment in business is in jeopardy, with governments lagging in approving the necessary laws.
Valdis Dombrovskis, the European Commission vice-president responsible for the euro, said the EU's goal of creating a capital markets union by 2019 might not be reached.
The CMU project aims to harmonise procedures within the bloc to improve cross-border investment, which has been held back for years despite EU treaties that guarantee free movement of capital.
But legislation underpinning parts of the project has been delayed, including simplified bankruptcy proceedings, the development of pan-European pension funds and the creation of a cross-border market in covered bonds.
“What we call for now is that CMU is made a priority, not only in words and political declarations but also in practice, and that tangible progress is made with the legislative proposals that are on the table,” Mr Dombrovskis said.
“It still remains our ambition to have our main building blocks for CMU in place by the end of this mandate,” he said, in reference to the end of the commission’s term of office in November 2019. “We still think it is realistic but it requires intensive work ... all legislative proposals needed to reach this goal are on the table.”
Mr Dombrovskis’s comments follow a call by eight EU finance ministers in July for efforts to be “redoubled” on the project.
Of 13 legislative texts presented by the commission since 2014, only three have been adopted, despite EU leaders having identified the project as a priority.
Brexit response
The desire to improve the EU’s capital markets is partly a response to Brexit. EU officials are concerned that the EU needs to improve financing conditions for companies after the exit of the UK, the bloc’s main financial centre.
The European Central Bank has also identified a capital markets union as a way to improve the euro zone's ability to weather financial crises.
“The overarching idea is ... to put European savings to productive use,” Mr Dombrovskis said. “In practice, in many cases it means removing barriers and advancing this logic of capital markets participants working in a single market based on a single European authorisation.”
In its fully developed state, the CMU would involve new pan-European licensing regimes for financial companies offering investment products, and more centralised EU-level supervision of markets.
Scant progress
Financial services professionals complain that progress has been slight, with the main legislative achievements so far being a trimming of red tape for small businesses that want to issue shares and a lowering of capital charges for banks buying securitised debt.
EU officials said progress was difficult because some CMU initiatives touched on sensitive national sectors, such as pension funds, and long-established national procedures in areas such as business insolvency.
Many EU governments have also been reluctant to embrace the idea of transferring more power away from their own national financial supervisors to EU authorities.
The CMU is also seen as key to addressing the major economic imbalances within the EU, not least by finding ways to direct the savings of people in richer countries such as Germany into profit-bearing investments elsewhere in the bloc.
Mr Dombrovskis said the plan remained central to the EU’s growth prospects.
"If you look at reasons why many companies in Europe, capital markets companies, fintech companies, why they are not scaling up in Europe, it is exactly this fragmented regulatory and supervisory landscape where they are faced with different requirements in each member state," he said. "That's the issue we need to address – this scaling up." – Copyright The Financial Times Limited 2018
