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What is Capital Market Union?


Everyone asks - Graham Bishop explains

Graham's public blog postings on Capital Market Union (CMU)

 


15 September, 2014

What is Capital Market Union?

It is the smooth flow of capital – at savers’ own risk - from them directly to users throughout the European Union, so both stakeholders in society benefit from cutting the cost of intermediaries. The credit standing of users will range from outstanding to just-acceptable, and the maturity of transactions will range from overnight to decades. The financial institutions that intermediate these flows will be regulated by the EU’s single rulebook for all participants in financial markets. As savers are taking the investment risk, they must be suitably educated/informed but protected against non-investment risks.

CMU would complete financial integration and bolster financial stability, as well as promoting the effective implementation of euro monetary policy in all parts of the eurozone economy. Crucially, it is profoundly de-centralising of economic, and thus political, power.

This vision is much wider than the non-exclusive list in President-Elect Junker’s letter to Jonathan Hill.

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10 September 2014

(Noon comment) Dear Commissioners-Designate Dombrovskis, Katainen, Moscovici and Hill

Welcome to the item at the top of your in-tray!

You have been handed pivotal roles in easing Europe out of its long-running economic crisis. It is not over by a long way and there are no magic bullets – just a long slog to remove the boulders strewn along the road. But first you must have a collective vison of the destination for the European economy. Then you must all work closely together to create a financial system that is capable of supplying credit right across the eurozone economy – from the smallest to the largest companies and across the entire continent. That is the prerequisite for economic recovery and thus jobs – and onwards to re-build political legitimacy.

  • You must be bold – implement swiftly - but simply- the President’s call for a Capital Market Union
  • Give power to the European people with an open union so the savers of Europe can make their own choice about where they put their money – a de-centralisation of power, both financial and political.
  • Avoid the vicious pro-cyclicality inherent in the strict rules on matching assets and liabilities that govern most EU financial intermediation via banks, insurers etc.
  •  My Temporary Eurobill Fund (TEF) can be a foundation for this Capital Market Union.

 


4 September 2014

Letter to ECON

Dear Chairman Gualtieri, 

Be bold: call for a Capital Market Union
- with a Temporary Eurobill Fund as its foundation

Ideas for the Eighth Parliament: Your Committee will shortly interview the Commissioner-candidates for both economic affairs and financial regulation. The latter will have the added responsibility for framing single-market regulatory policy for the European Union as a whole. The Committee now has a key moment of influence to encourage these Commissioners to commit to principles for bold action joining up both economic and financial regulatory policy. Moreover, such policies should be sufficiently visionary to enable the ECB to adopt correspondingly bold technical measures - within its mandate and without risking accusations of usurping the democratic powers of elected politicians.

My principal macro policy suggestion is for a Capital Market Union to complement Banking Union. At the micro level, my suggestion is for a Temporary Eurobill Fund (TEF) to create a firm foundation for both.

More for Friends of Graham Bishop 


1 August 2014

Building blocks for #CMU: another one about to be put in place?

In his acceptance speech to the EP, President-Elect Juncker floated the idea of a “Capital Market Union” (CMU). Now the FT reports that he may be considering a carve out of financial services from DG Markt (the unit in charge of the whole Single Market portfolio) and combining it with parts of DG ECFIN. There is some logic to this – driven by the push for CMU.

  • More for Friends of GrahamBishop.com   
  • My article on CMU in Financial World link
  • See my 25 July blog below for more on CMU

 


25 July 2014

#CMU - Capital Market Union: What is it?

I used the phrase, and discussed it extensively,  at the 100th Brussels for Breakfast at the British Bankers Association as reported by Reuters - see below.  As a result, I felt that I should flesh out the concept and a 2,000 word article elaborating on the operational process will appear in Financial World on 1st August. The use of the phrase by Commission President-elect Juncker has made this particularly timely and Hugo Dixon wrote about it for British Influence link. This is a powerful reason why the City of London should argue the case strongly for Britain to remain a fully-committed and influential member of the EU.

*******

`Capital Market Union’ is a handy catchphrase, but can it develop into a major contribution to the deepening of European monetary union? Banking Union is on the statute books and we are sailing toward full implementation. However, few observers recognise the massive pooling of sovereignty implicit in banking union. What if there were an offset? Arguably, there is: a properly-designed capital market union would deepen the single market in finance but simultaneously buffer some of that sovereignty loss. It would be an open union that enables the savers of Europe to make their own choice about where they put their money – and de-centralise both financial and political power.

Why does Banking Union pool sovereignty?

The entire Eurozone banking system is now subject to the single supervisory mechanism (SSM) operated by the ECB. It will apply very detailed regulations drawn up by the European Banking Authority. These derive their legitimacy from legislation of the European Council and Parliament.  When the process is fully operational, “Europe” will have rules that should ensure the nearly-absolute safety of customer euro deposits equal to about 150 per cent of Eurozone GDP. These deposits are part of the support for banking assets that are closer to 300 per cent of GDP. But 85 per cent of these assets are under the managerial control of the 130 `SSM’ banks – and 5 groups control around 45 per cent of them. That is a massive concentration of financial power and any major failure of these European rules will surely have grave consequences for European citizens. By any definition, that is a major centralisation of the political sovereignty used to protect those citizens.

Why is `capital market union’ intrinsically different?

A well-designed capital market union should have exactly the opposite economic effect. The citizen-savers will decide the nature of the securities they wish to hold. Those securities may be issued via, traded by, and held in custody by, the same banking groups. But, if the citizens do not like the investment results achieved by their asset managers, they can move their assets to a different instrument, level of risk and location. In effect, this would be a rolling referendum by the most informed members of society. €7tn of assets (50 per cent of EU GDP) are invested in more than 35,000 UCITS funds alone.

Graham Bishop - Consultant on EU Integration - Political, Financial, Economic, Budgetary


03 July 2014

A capital markets union could be the next thing in EU's in-tray

Graham is quoted in the recent Reuters article "So far, the term is just a catchy title for multiple plans to secure more financing from markets for companies and infrastructure projects that would help drive growth"

For the full article click here