This report was drafted at the request of Michel SAPIN, French Minister of finance and public accounts and has benefited from the views of public authorities and markets participants. It is a contribution to the ongoing debate on the development of a Capital Markets Union (“CMU”) in the European Union.
It transpired from the interviews and studies carried out in the course of the preparation of this report that the key objective of the CMU should be to reinforce or create, on an EU wide basis, trusted mechanisms that allow savings to be invested where innovation emerges, companies grow and new jobs are created. In other words, the first pillar of a CMU should be an Investing Union.
This proper allocation of capital can be achieved by further diversifying market-led funding sources to finance EU economies, companies and entrepreneurs, in addition to existing banking sources, which are currently dominant but not fluid enough. This would also require making flows of capital more fluid within the EU financial system and EU market intermediaries and infrastructures more robust and competitive. In short, the second pillar of a CMU should be a Financing Union.
According to market participants a successful CMU, combining an Investing Union and a Financing Union, should be articulated around the following 4 key policy priorities:
- removing negative incentives that are limiting investments (notably long term investments) and disrupting the efficient allocation of capital within the Single Market;
- enhancing capital markets' transparency and increasing EU cross border investor confidence;
- widening market-led access to finance; and
- favouring liquidity and ensuring a fluid capital flows between investors, the banking system and funding needs.
Of course, without a strong political will and the high level commitment from the EU institutions, none of this will happen. To drive the process, the EU should set a clear ambition that can be easily communicated to EU citizens.
The ambition could be that by 2025, the EU should be:
- financed by an integrated and liquid capital market providing 40% of funding needs;
- the most attractive funding and listing place in the world for the innovative economy;
- the world financial center for long term and infrastructure investment;
- the provider of leading market benchmarks, financing processes and indices successfully implemented in the euro area; and
- the domestic market of a powerful financial industry competing on an equal footing with global players.
The set of 25 strategic recommendations included in this report suggest a way forward to reach this ambition.
Documents associated with this article
CMU Demarigny EN.pdf
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