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EU leaders are set to revive plans for eliminating national barriers between the bloc’s capital markets, as they race to find hundreds of billions to fund a rapid scale-up of the continent’s defence capabilities and its green transition.
A two-day EU summit starting Wednesday will commit to “advancing the Capital Markets Union,” according to draft conclusions seen by the Financial Times. The CMU, first proposed almost a decade ago, has stalled amid resistance in national capitals to handing more powers to Brussels.
But fears of the bloc falling behind the US and China, and strains placed on public coffers amid increasing spending needs have led to a rethink about finally bringing those plans into fruition.
“We need huge sums of money,” financial services commissioner Mairead McGuinness told the FT. “The public purse of the member states is not enough, so we need private capital to be mobilised.”
The CMU revival comes after German Chancellor Olaf Scholz and French President Emmanuel Macron at a summit in March demanded that the issue be elevated from finance ministers to leaders who are more aware of the strategic significance of this file, according to officials familiar with the discussions.
“It needs to be solved by our bosses,” said an EU diplomat, pointing out that there was “no willingness to compromise among ministers”.
“There is simply not enough public money to finance the green transition [and] defence,” they added. “Either [the leaders] move on CMU or they will have to make more difficult choices.”
The European Central Bank estimates the investment gap to reach the EU’s 2040 climate targets at €800bn per year. Another €75bn will be needed yearly for capitals to meet Nato’s military expenditure target of 2 per cent of GDP.
“If we don’t provide a narrative [on how to finance it] we will lose political support for something that is existential . . . This is why it’s now so high on the agenda,” McGuiness added.
A similar warning to leaders about the risk of underfunded policies fuelling anti-EU sentiment ahead of June elections for the European parliament will be made in a report on the bloc’s single market drafted by former Italian Prime Minster Enrico Letta.
By integrating Europe’s fragmented financial markets, its proponents say, capital would flow to or at least stay in the EU. The bloc currently sees a net financial outflow of €250bn per year to the rest of the world, mostly to the US, according to the European Central Bank.
“This is one of our weaknesses: the fragmentation of our capital markets. For everything, not just defence,” Josep Borrell, the EU’s top diplomat, said last week. “If we want to push for better financing for the defence industry, then we certainly have to [complete] the capital markets [union].”
But countries disagree on the recipe needed for making that happen.
One of the most-disputed issues among ministers is financial markets supervision. Some countries, including France and the Netherlands, are pushing for the existing EU regulator, the Paris-based Esma, to be given direct oversight over financial institutions in Europe.
France is pushing for a more ambitious model that would place trading platforms, clearing houses and asset managers under Esma’s direct supervision — if they opt in voluntarily.
Berlin however opposes central supervision on the grounds that it would create additional costs for banks and other market actors.
“I know this will be one of the areas where movement will be difficult but the direction of travel is clear. If we want to unleash investments, we need supervision that is not just member states-driven,” said McGuinness.
Karel Lannoo, head of the Centre for European Policy Studies, a Brussels-based think-tank, questioned whether leaders would be able to find a solution.
“The problem is who will be willing to break some eggs, that’s the issue. Everybody has an interest in maintaining the status quo. It will be costly to change it.”
