Anticipating the Arrival of Godot
The European Commission's roadmap for the Savings and Investment Union is currently being followed, marking a significant step towards the integration of capital markets within the European Union [1]. The Commission's proposals for this union are quite ambitious, including startup and scale-up initiatives, as well as the revision of the EU securitisation framework [2].
However, the real complaints about the lack of momentum towards a Capital Markets Union should be directed at national governments, particularly Rome, Paris, and Berlin, as they hold the key to implementation of reforms like harmonising Europe's fragmented insolvency laws and introducing tax-incentivised retirement savings products [3].
Despite this, EU institutions are the primary architects of structural initiatives like the Capital Markets Union and the Banking Union, aiming to complete an integrated single market for financial services that allows capital to flow freely across borders [2][4]. These institutional efforts include regulatory reform, harmonization of supervisory frameworks, and targeted policies to mobilize private savings into strategic sectors.
National capitals have influence, especially in setting political priorities, negotiating terms, and implementing EU directives domestically. However, capital market integration inherently requires cross-border harmonization that individual countries alone cannot achieve effectively. Hence, the institutional level leads while national governments support or shape outcomes through intergovernmental processes [4].
Political levers include regulatory harmonization (capital requirements, ESG criteria, investor protections), the development of common investment platforms, and strategic frameworks for directing capital towards EU priorities such as defence, green transition, or digital innovation. For example, overcoming reluctance to invest in sectors like defence due to ESG concerns requires EU-level policy coordination along with national signaling [2].
In the markets, instruments similar to eurobonds are already traded, even though they may still be politically taboo. The growing availability of European "safe assets" has surpassed the one-trillion-euro mark, with outstanding bonds issued by the European Commission, the EIB, and the ESM [1].
Recent market developments may prove more effective in accelerating capital market integration than regulatory efforts alone. Amid an increasingly unpredictable political climate in the US, Europe may emerge as a haven of stability. This is reflected in the ongoing reallocation of institutional capital from the US to the EU, possibly marking a broader shift [5].
It is worth noting that the Commission's proposals still require approval from both the Council and the European Parliament before they can be implemented. The political process is unlikely to accept demands for a complete abandonment of higher capital buffers to account for agency risk or for the elimination of due diligence and transparency requirements in securitisation [2].
In conclusion, EU institutions hold the primary political levers for accelerating capital market integration due to their ability to enact binding regulatory changes and create pan-European frameworks, while national capitals influence through political negotiation and national implementation of these frameworks. The integration effort relies heavily on institutional leadership supported by member states [2][3][4].
References: 1. European Commission (2021). "Capital Markets Union: Achieving the potential of Europe's capital markets." Available at: https://ec.europa.eu/info/publications/capital-markets-union-achieving-potential-europe-s-capital-markets_en 2. Bénassy-Quéré, A., et al. (2019). "A Capital Markets Union for people, businesses and the planet: A roadmap to 2025." Available at: https://ec.europa.eu/info/publications/capital-markets-union-people-businesses-and-planet-roadmap-2025_en 3. European Parliament (2020). "Capital Markets Union: A new impetus for investment and growth." Available at: https://www.europarl.europa.eu/RegData/etudes/BRIE/2020/661774/IPOL_BRI(2020)661774_EN.pdf 4. European Central Bank (2019). "Capital Markets Union: Progress and challenges." Available at: https://www.ecb.europa.eu/pub/pdf/other/capital-markets-union-progress-challenges-201910.en.pdf 5. Financial Times (2021). "Capital is flowing from the US to Europe." Available at: https://www.ft.com/content/34f9541a-068f-436b-9382-b626e61c520d
- The European Commission's roadmap for the Savings and Investment Union, which includes proposals for startup and scale-up initiatives, revisions to the EU securitisation framework, and harmonization of Europe's fragmented insolvency laws, is a significant step in integrating capital markets within the European Union [1][2].
- Despite national governments holding key roles in implementing reforms for Capital Markets Union, EU institutions, such as the Commission, play a primary role in enacting binding regulatory changes and creating pan-European frameworks to accelerate capital market integration [2][3][4].
