Capital markets union is key to a sovereign EU

The writer is chief executive of Deutsche Börse

“Relance, puissance, appartenance” (recovery, strength, belonging) is the motto of France’s presidency of the European Council. It evokes EU sovereignty, the future of our society, values and community and the future of the bloc as a thriving global business destination.

With this, one familiar project has returned to the top of the agenda — capital markets union. Although we have been discussing it for years, little progress has been made — whether due to a lack of will or ability, I am not sure. But if we are serious about CMU, we have urgently to change our strategy.  

With or without CMU, Europe’s capital markets are vital to its future. But despite years of effort to build them up, the EU is falling behind. Last year there were approximately 2,700 initial public offerings globally, yet less than 12 per cent of those were in the EU, while more than 60 per cent were in the US and Asia.

The number of listed companies in Europe is also declining, while the EU’s capital markets remain highly fragmented. Moreover, with the UK’s departure from the EU, Europe has lost an important voice in their favour.

With the City of London launching regular consultations on the future of its capital markets, the EU must realise that its priorities — notably digitisation and the “green transition” — cannot be achieved without better and deeper capital markets. The investment required is too great to be borne by banks alone. Individual countries are equally overburdened.

I welcome, therefore, the stated aim of Bruno Le Maire, the French finance minister, who has said that, to fund the green transition, for every publicly invested euro, we must secure at least €3 of private investment. The global success of the future EU economic model can only be ensured if we take this formula seriously.

But if Le Maire’s ambition is to be realised, a cultural shift is required. We must stop demonising the capital markets, an attitude all too prevalent in certain quarters in Europe — and entirely unlike the one that prevails in the UK and US.

While this is in part a lingering effect of the 2008 financial crisis, its roots go much deeper. So it is imperative to attract wider society to the capital markets. The European Commission’s push for a retail financial strategy is a useful step in this direction, as it requires increased investment in economic and financial education. We need to empower our citizens to invest safely and sensibly and provide them with a range of attractive products and incentives to do so.

A central part of this is a commitment to transparency and integrity. We need to stop fooling ourselves: we are a long way from having a transparent capital market in the EU. Transparency across EU equity markets is now significantly lower than before the introduction of the Mifid regulations — only around 35-50 per cent of the trading volume is executed on transparent trading venues. Today, more than 10 years after the financial crisis, 92 per cent of EU derivatives trading is over the counter. And we have created an EU bond markets regime where a mere 3 per cent of bond instruments are considered transparent.

We have a regulatory framework that not only continues to tolerate conflicts of interest and opacity, but actively encourages them.

Effective EU capital markets also need strong major exchanges capable of competing globally, especially with their US counterparts. Europe will never be properly “sovereign” without them. Anything else would be to gamble with the economic future of our continent.

Taking action now is critical. The historic transformation of global capital markets through environmental, social and governance investing and digitisation creates a unique opportunity. Europe is a world leader in the creation of an ESG framework and we can exploit this leadership to shape future-oriented and competitive capital markets.

EU exchanges and market infrastructure operators are the backbone of CMU and our future sovereignty. But our exchanges need scale to live up to this responsibility and to equip themselves to stand up to global competition. We need policies and a regulatory framework that acknowledge this reality and aid our evolution, rather than hamper it.

For us to succeed in this endeavour, the confidence of Europeans in the capital market must be strengthened. This, in turn, requires us to guarantee transparency, integrity and stability — which we can only do if our efforts are based on a strong EU-wide financial market infrastructure.