the future of European capital markets

In the aftermath of the European Championships and in view of the next one Council “Economics and Finance” of June 21st the focus on the theme ofCapital Markets Union. Launched in 2015 by Jean-Claude Juncker Commissionthe Capital Markets Union (CMU) initiative included a list of over 30 actions aimed at creating the building blocks of an integrated capital market in the EU by 2019. But to date the project, although it has been at the top of the political agenda for over a decade, has not yet taken off.

Capital Markets Union: the first steps

The objective of the Capital Markets Union is to ensure – through a truly EU-wide single capital market – the flow of investments and savings in all Member States for the benefit of citizens, businesses and investors. Efforts to create a single capital market began in 1957 with the Treaty of Rome and work in this sector intensified in the 1990s and 2000s, with the Treaty of Maastricht of 1992 which established the free movement of capital as one of the four fundamental freedoms of the single market. Following the 2011 financial crisis, the European Commission presented its first in 2015 action plan for the Capital Markets Union. In 2020, the Commission published a new action plan to take forward the completion of the capital markets union. In its action plans, the Commission has outlined a series of legislative and non-legislative measures to achieve three key objectives: supporting a green, digital, inclusive and resilient economic recovery making financing more accessible to European businesses; make the EU an even safer place for people to save and invest in the long term; converge national capital markets into a true single market. While these plans have now been largely implemented, further work is needed to achieve a well-functioning Capital Markets Union.

The 2021 and 2022 Capital Markets Union packages

On 25 November 2021, in response to the 2020 Action Plan, the Commission published the first Capital Markets Union packagewhich included four legislative proposals: a single access point for investors, the European Single Access Point (ESAP); the review of the regulation on European long-term investment funds (ELTIF); the review of the Alternative Investment Fund Managers Directive (AIFM); the review of market regulation of Financial Instruments (MiFIR) and the Markets in Financial Instruments Directive (MiFID II).

The 2022 package on the Capital Markets Union includes legislative proposals regarding: amendments to the Capital Markets Regulation infrastructure of the European market (EMIR); the harmonization of certain aspects of law relating to insolvency within the EU in order to increase the efficiency and predictability of regulatory frameworks, in particular with regard to cross-border investments; rules regarding quotation for businesses, especially small and medium-sized enterprises (SMEs).

The future of European capital markets

In 2023 and early 2024 the Eurogroup worked on a strategic initiative aimed at achieving agreement between the Finance Ministers of all EU Member States on the key priorities for strengthening and deepening European capital markets in the coming years. Ensuring the smooth functioning of European capital markets is essential to facilitate the flow of private capital needed to finance the EU's key investment needs. This, in turn, it will facilitate the flow of investments and savings among all EU countries. Consumers, investors and businesses will benefit, regardless of where they are located. The initiative complements ongoing legislative work on the Capital Markets Union. The Eurogroup agreement includes additional measures to be pursued as a priority to create a thriving capital markets ecosystem within the EU, commensurate with the EU's position as the largest single market in the world.

Obstacles to the development of the CMU

To hinderdespite different agreements on various measures, the development of the Capital Markets Union are, first and foremost, the national interests of the Member States. “There France and the Germany – as Angela Barnes points out in an analysis on Euronews – have proven themselves favorable to the CMU, while several countries are reluctant to cede more control to Brussels and many of them fear the additional costs to their domestic financial industries. As a result, financial systems across the bloc remain fragmented and country-specific laws continue to hinder cross-border financing. In essence, – concludes Barnes – investment and insolvency rules must be unified to facilitate cross-border investments. National government leaders will have to accept this point to realize the CMU, which will require the same level of political will which created the European single market in 1993.” A political will that may not be shared by the new European leadership.