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(Bloomberg) — Engulfed in a prolonged economic slowdown and facing the prospect of Donald Trump returning to the White House, the European Union is dusting off a plan to unite its disparate capital markets.
The so-called Capital Markets Union, or CMU, has long been on the to-do list for officials trying to deepen the EU’s single market and secure stronger investment and economic growth. But the project, launched nearly a decade ago, has repeatedly stumbled over national interests or been eclipsed by more urgent work responding to crises such as the Covid pandemic.
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There is now a growing drumbeat of calls to get back on track to attract private money to help fund investments in the climate transition and spur an economy that’s losing momentum. Officials also have to negotiate European Parliament elections in June, which risk seeing breakthroughs for parties that traditionally oppose greater integration.
Adding to the sense of urgency, European Central Bank President Christine Lagarde last month cited the single market and CMU as the best way to bullet-proof Europe’s economy with the prospect of economic disruption from another Trump presidency in the US.
In a draft statement on CMU seen by Bloomberg, EU finance ministers said: “If the development of European capital markets is not addressed urgently, Europe is at risk of falling behind globally in terms of competitiveness, growth, and prosperity of its citizens.”
The latest wish list of reforms, which will be discussed at an informal meeting of EU finance officials next week, focuses on the architecture of capital flows around Europe, boosting funding for businesses, and improving access to savings and retirement products for individuals.
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The benefits of getting it right could be big.
“CMU could boost cross-border private risk-sharing, reduce reliance on bank financing and enhance capital allocation efficiency, promoting higher economic growth and euro-zone integration,” Allianz economists led by Ludovic Subran wrote in a recent report. “To restore its overall competitive edge against the US, the next European Parliament urgently needs to tackle the obstacles to higher productivity growth.”
Even as momentum builds to take action, it’s unlikely a deeper union could deliver a quick fix for the region’s economic woes. Growth in the 20-nation euro zone will accelerate only slightly to 0.8% this year from 0.5% in 2023, according to the latest projections by the European Commission, the EU’s executive arm.
One of the key ideas, championed by Lagarde, is to create a European version of the Securities and Exchange Commission to overcome a patchwork of regulatory frameworks. Another aim to drive CMU is to provide greater choice of funding for companies, so they aren’t forced to tap foreign markets such as the US.
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Other officials, including Bundesbank President Joachim Nagel, have joined the rallying call for CMU in recent days. Addressing the Munich European Conference on Thursday, he said it would make the ECB’s job easier by equalizing the impact of policy in different countries, as well as strengthening growth and investment.
“The banking and capital markets union is another area where we are still a long way off from achieving complete integration,” Nagel added.
ECB Executive Board member Isabel Schnabel said more integrated capital markets could improve European tech’s access to funding, which has disadvantaged firms in the past.
“Our financial markets also remain segmented along national borders,” she said in a speech in Italy on Friday. “Financial integration in the euro area has not increased from where it stood in the early years of monetary union.”
Ahead of the meeting of European central bankers and finance ministers in Ghent, Belgium next week, others have been more alarmist about the challenges.
Germany’s finance minister, Christian Lindner, has described the prospect of growth in his country this year of just 0.2% as “downright embarrassing,” arguing that continued inertia will come at a price. He acknowledged that private capital markets will have to participate in a greater proportion than until now to stem the energy transition.
—With assistance from Jorge Valero and Mark Schroers.
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