© Reuters. FILE PHOTO: European Union flags flutter outside the EU Commission headquarters in Brussels, Belgium, July 14, 2021. REUTERS/Yves Herman/File Photo
By Huw Jones
LONDON (Reuters) -The EU should consider tackling barriers that prevent stock exchanges from merging to deepen the bloc’s capital market and stop it falling behind competitors, euro zone finance ministers said in a draft statement seen by Reuters.
The draft statement said the euro zone finance ministers, along with the European Central Bank and European Commission, have identified “imperative” legislative priorities for the Commission’s new five-year term that starts in the autumn.
They want to see more progress towards creating a capital markets union in the EU to help companies raise money for growth on stock and bond markets, rather than heavily depending on banks.
“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 paper said.
The United States has deep stock and bond markets that companies use to raise cash, but Europe’s markets are fragmented, with a plethora of stock exchanges that makes it difficult to create a single capital market for the region.
“We invite the European Commission to assess [and, if relevant, address] obstacles that prevent the consolidation of stock exchanges and of better integrated market infrastructure, to strengthen European centres of expertise (e.g. green bonds issuance),” the draft statement said.
The document also draws inspiration from Britain’s “Mansion House Compact” that has obtained commitments from UK-based pension funds to invest 5% of their money in UK growth companies over time.
“In this context, member states could explore, where appropriate, whether voluntary commitments from large institutional investors to invest in EU equity as part of their European portfolio could be helpful,” the paper said.
Euro zone ministers would assess progress on implementing these measures at least annually, starting from 2025, using agreed performance indicators.
INTEGRATING SUPERVISION
ECB President Christine Lagarde has called for a European SEC, or powerful single regulator for securities, to drive through CMU reforms and counter differing national practices.
EU states have hitherto pushed back against giving the EU’s securities watchdog ESMA more powers, but slow progress on CMU and competition from a post-Brexit London easing securities rules are prompting a rethink of how to get round objections.
“Red tape and high transaction costs for market participants reduce the EU’s attractiveness as a financial hub,” the paper said, along with ideas for beefing up ESMA, the bloc’s securities watchdog.
“In this context, we also invite the European Commission to consider the possibility of proposing an opt-in mechanism for a single supervision by ESMA of entities with significant cross-border activity in the EU who would benefit from a [substantial] reduction of compliance burden through a single supervisor,” the paper said.
Another option is for ESMA to coordinate “colleges” of national supervisors to streamline oversight of big cross-borer firms.
Factors holding back the securitisation market, and harmonisations of accounting for unlisted companies should also be considered, the document said.
