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The objective of creating a more integrated capital market in Europe is widely shared among academics, commentators and even politicians. The process was launched in 2015, following the submission of the Five Presidents’ Report.1 The urgency has been reiterated recently in the report presented by Enrico Letta to the Heads of State and Government.2 The French and German Ministers of Finance signed a joint article in the Financial times, calling to “close the EU capital markets gap”.3 ECB President Christine Lagarde also advocated restarting the Capital Market Union agenda.4
Last April, the European Council asked the Council and the Commission to work “without delay on all identified measures that are necessary to create truly integrated European capital markets which are accessible to all citizens and businesses across the Union, to the benefit of all Member States.”5
Over the years, little progress has been achieved.
Progress has been disappointing
The economic arguments in favor of creating a deep and integrated capital market in Europe are well known. Without it, Europe cannot provide the financing it needs to address the key challenges it has set for the coming years, such as the climate and digital transition, nor support the development of its companies in the global competition. These objectives cannot be achieved with public money alone. Private funds are essential.
The paradox is that while private savings are widely available, they cannot be leveraged and directed efficiently towards the most productive investment in Europe because the financial system remains fragmented and sub-scale. A large part of European savings thus tends to be channeled outside Europe, directed at financing investments and jobs in other parts of the world.
While the case for a European Capital Markets Union seems to be widely shared, progress has been limited, slow and disappointing.
The official explanation is that the project is more complicated than any other Europe faced in the past and requires many actions in very different fields. This argument is not very convincing. Achieving a completely integrated capital market is indeed a complex task, but so were the single market in the mid 1980s, the monetary union of the late 1990s and the banking union of the past decade. Furthermore, not everything needs to be implemented from the start to get a critical mass capable of generating a centripetal dynamic, as the experience in other areas shows.
The alternative - more credible - explanation for the lack of progress is the fear that a CMU would produce negative consequences for specific sectors or parts of the union. In welfare economics terms, the CMU is not perceived to be Pareto superior to the status quo, in the sense that not all participants expect to gain from a move to CMU. Those who are negatively affected or fear being penalized by CMU have been successful in mobilizing political support to delay and possibly even bury the project....
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