The incoming president of the European Commission, Jean-Claude Juncker, has declared the creation of a “European Capital Market Union” a central component of his program. As a complement to the European banking union, which was initiated in 2012 as a response to the euro zone crisis, it can be a further step toward a real, functioning single financial market in the European Union.
The capital market union is sensibly aimed at achieving a better integration of national capital markets, lending more importance to the capital market as a whole. But where exactly are the shortcomings of the existing single market, which already includes provisions for capital transactions?
For example, securities trading in Europe has largely been done on a national basis until now. This is essentially because of the different rules for capital issues, the rights of investors, as well as in insolvency and taxation law. Moreover, the market suffers from decreasing liquidity, not least because of a tightening of banks’ own funding requirements.
Another deficiency is a pronounced weakness in venture capital. Any positive developments on the securitization market were also mostly nullified by the financial crisis – and this at a time when banks’ balance sheets are shrinking and relief is urgently required from alternative, external financiers. It would be much easier to “sell” a joint European capital market, especially to non-European investors.
What can the successful capital market union achieve for Europe? Why do we need a stronger capital market?