Capital markets offer diversified mechanisms for linking potential investors with those seeking types of finance other than direct bank lending. As this paper explains, the CMU initiative seeks to extend their flexibility, range and availability to those seeking finance.
Capital markets offer diversified mechanisms for linking potential investors with those seeking types of finance other than direct bank lending. Capital markets harness savings and investments at the personal level and aggregate them with other forms of finance to form financial products (generally long-term debt and equity-based securities) which can be used by those requiring significant finance for long-term investments, projects or business expansion. In the EU these markets have been used mainly by large organisations, whether governments or major businesses. The CMU initiative seeks to extend their flexibility, range and availability to those seeking finance at all levels.
EU capital markets at present are mostly shallow and are under-utilised for a number of reasons, including divergent rules and practices between the EU Member States and their divergent rules and practices in relation to the regulation of capital markets. A CMU could bring significant benefits to the EU economy by opening up greater sources of finance for businesses and public sector investment.
Establishing a CMU is one of the main policy aims of the President of the European Commission, Jean-Claude Juncker. In February 2015, the Commission published a Green Paper identifying a number of priorities for the CMU project and beginning a wide-ranging consultation with Member States, national parliaments, citizens, SMEs, NGOs and the financial sector in order for the Commission to formulate a precise Action Plan for creating a CMU.
This briefing paper considers what progress has been made so far in creating a CMU, what specific benefits it could bring to the EU, and what challenges need to be overcome in order to make it a reality.
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