Triple steps to the Capital Markets Union

Speeches, declarations, reports, political guidelines and mission letters. Barely a week has gone by in recent months without a new contribution stating that it is finally time to make progress on, or even „complete“, the Capital Markets Union.

Here is a small but incomplete excerpt:

• 13 September 2023: Former German Finance Minister Christian Lindner and his French counterpart at the time, Bruno Le Maire, present a roadmap for the Capital Markets Union (CMU). They stress that „progress on the CMU is needed now to improve financing opportunities for European companies and to mobilise investment for transformation“.
• 7 March 2024: In a statement on the further development of the CMU, the Governing Council sets out the reasons why the CMU should be supported and extended.
• 9 March 2024: The Eurogroup publishes a statement on the future of the CMU, describing the creation of a single market for capital as „indispensable“.
• 25 April 2024: A group led by Christian Noyer, Honorary Governor of the Bank of France, presents a report with concrete proposals to revitalise the Capital Markets Union, focusing on EU capital markets supervision, securitisation markets, EU savings and investment products, and post-trading and settlement systems.
• 10 April 2024: Enrico Letta, former Italian Prime Minister, publishes a report on the future of the Single Market. He argues for greater financial integration within the single market and proposes the development of a Savings and Investment Union.
• 18 July 2024: Ursula von der Leyen, President of the European Commission, elected for a second term, presents her political guidelines for the starting legislative period (2024-2029) to the European Parliament. She promises to take up Enrico Letta’s proposals for a Savings and Investment Union. Such a union should „help to harness Europe’s enormous private savings to invest in innovation and the clean and digital transition“.
• 9 September 2024: Mario Draghi publishes a report on the future of European competitiveness. This includes proposals to deepen the Capital Markets Union and reduce the fragmentation of EU capital markets.
• 17 September 2024: Ursula von der Leyen proposes Maria Luís Albuquerque as Commissioner-designate for Financial Services and the Savings and Investment Union. In her mission letter, the Commission President asks the Commissioner to develop a European Savings and Investment Union. She should also tackle the fragmentation of capital markets and help develop „simple and cost-effective savings and investment products at EU level“.
• 8 November 2024: In a „Budapest Declaration on the New European Competitiveness Deal“, the European Council calls for decisive steps towards a Savings and Investment Union by 2026 and for urgent progress on the Capital Markets Union.

But despite the numerous, almost unanimous appeals, reminders and postulations, is progress really to be expected in the coming years? If we are to believe the documents of an important committee of representatives of the EU Member States and the European Commission, no great leaps forward are to be expected, especially with regard to the project to create a „Savings and Investment Union“.

Savings and Investment Union: the unicorn of the Capital Markets Union?

If we look at the much publicised idea of creating savings and investment products at EU level, we see that the majority of Member States are critical of a legislative proposal to introduce an investment and savings account in all Member States with minimum conditions for a Europe-wide label and tax treatment. Instead, an exchange of best practices is favoured. Many Member States are sceptical that the Commission will succeed in achieving greater harmonisation in the taxation of capital gains. Reference is also made to the failure of the Pan-European Private Pension Product (PEPP).

There is also widespread scepticism about the idea of creating an EU label for „new“ retail investment products with a similar tax structure or, even more ambitiously, an EU savings and investment account. Not only is their feasibility questioned, but also their potential contribution to increasing the participation of retail investors in the capital markets. Tax issues also play an important role, as does the interaction with existing products at national level. The exchange of best practices is again mentioned as a possible alternative. Enhanced cooperation between „willing“ Member States also seems to be an option.

At best, there seems to be agreement on a revision of the legal framework for PEPPs. Most Member States recognise the need to make the products more attractive. However, there seems to be doubts as to whether a revision will actually encourage more retail investors to allocate a significantly higher proportion of their savings to long-term investments.

Capital Markets Union: Much ado about little?

Back in September 2015, the EU Commission presented an action plan with measures to create a true single market for capital in Europe. Almost ten years have passed since then and the EU has failed to make significant progress. Progress has been no faster than incremental steps. And even if the many speeches, declarations, reports, political guidelines and mission letters now herald a new dawn and there is a certain momentum for further steps, no radical measures are to be expected. Established structures, natural frictions, national sensitivities and competence issues will act as a brake on ambition. That may be regrettable here and there. But it should come as no surprise to anyone.