Although no progress has been made this year towards a European Capital Markets Union, William De Vijlder, former Chief Economist at BNP Paribas, remains cautiously optimistic about building a stronger financial Europe. According to him, four groundbreaking reports from the past year point the way forward.
For De Vijlder, who stepped down as BNP Paribas’ Chief Economist in September, the EU could do more to communicate these analyses to a wider audience. “Is the general public sufficiently aware of the challenges to our future prosperity? That’s what these reports are ultimately about. The European Central Bank (ECB) communicates frequently and clearly, so why can’t broader European economic policies do the same? Ignorance could lead member states to say, ‘We’ll handle this ourselves and ignore Europe,’ which is a complete illusion.”
1. The Draghi report
In September, former ECB President Mario Draghi presented his much-anticipated report on the competitiveness of the European economy.
“The question is: how can we sustain the prosperity we currently enjoy in a world that is vastly different from 25 to 30 years ago? Draghi’s message is clear: without productivity growth, we face stagnation,” De Vijlder summarised. “The emphasis is on growth—merely maintaining the current level won’t suffice.”
“What’s particularly interesting is his recognition of the enormous heterogeneity across sectors. That’s why his report spans so many pages. Different sectors face vastly different challenges: while some thrive, others are in deep crisis due to global competition. Policy responses must be tailored accordingly.”
“When Draghi warns, ‘Beware of stagnation,’ we need to take it seriously. This is about creating prosperity for future generations. The Capital Markets Union (CMU), which has been discussed for about a decade now, is a critical part of this. If a startup can’t find venture capital in Europe, it will move elsewhere. That means no new wealth is created here, and our taxable base continues to shrink.”
“I often say, ‘Growth is local, but interest rates are global.’ By that, I mean we must examine what we can do within the eurozone to provide households with a certain standard of living, knowing that long-term interest rates are largely shaped by global factors. You can’t rely solely on growing trade surpluses with foreign countries every year to drive economic growth—that’s not sustainable.”
2. The Noyer report
While the Draghi report has been hotly debated in financial circles, the report on a Capital Markets Union by a group led by Christian Noyer (former Governor of the Banque de France) has received far less attention.
“The Noyer report got little coverage in the financial press, let alone in general media. Yet it’s a very insightful report on how we can streamline the financing of Europe’s economy,” said De Vijlder.
“To make the importance of a CMU more tangible, I’ve toyed with the idea of calculating the annual costs of not having such a union. This is theoretically feasible: you could simulate the higher financing costs companies face due to fragmented European financial markets.”
3. The Letta report
De Vijlder also recommended the report by Enrico Letta on the European Single Market. Letta, like Draghi, a former Italian Prime Minister, calls for a sort of rediscovery of what was long the cornerstone of the EU project: fostering more trade within a unified market with as few national barriers as possible.
4. Tirole and Co.
Around the same time as the government-backed reports by Noyer and Letta (April-May 2024), an influential independent report was published on Europe’s weak performance in the global innovation race. The authors include notable figures such as Nobel Laureate in Economics Jean Tirole and Daniel Gros (CEPS).
De Vijlder commented: “Why does Europe lag in innovation? The study reached an interesting conclusion: Europe is stuck in a mid-tech trap. It’s not that too little money is invested in R&D, but investments are overly focused on mid-tech activities like the automotive industry. What Europe should do more of is invest at the cutting edge of technology—true groundbreaking innovation. The U.S.’s ‘Magnificent Seven,’ which can experiment with innovation thanks to their massive cash flow, operate precisely in this space.”
Conclusion: ‘Time for action’
“The merit of all these reports is that they provide a comprehensive overview of what’s wrong. We know what needs to be done. Now it’s time for action,” said the former Chief Economist and professor at Ghent University.
Germany and France, traditionally the driving forces behind the European project, are currently in political turmoil. However, De Vijlder argued that this need not lead to permanent paralysis.
“Political crises are temporary, and the advantage of upcoming elections, such as in Germany, is that they can bring clarity. Moreover, other countries like Spain, Poland, and perhaps even Italy could step up.”
“We must avoid engaging in ‘Europe bashing’. Yes, the U.S. is performing better economically, but it’s also highly polarised and grapples with severe inequality. Europe faces many challenges, such as the geopolitical context, but historically, the European project has made progress precisely when the pressure is high.”
“If we fail to retain innovations in Europe, we’re in trouble. However, Europe also has strengths, such as its leadership in sustainability, both in terms of climate impact and inclusive growth.”
Despite rising Euroscepticism, De Vijlder remains relatively optimistic about the potential progress of the European project. “With a renewed mandate for European Commission President Ursula von der Leyen, there’s an element of continuity, which could generate new momentum. At a recent conference in Frankfurt, ECB President Christine Lagarde made strikingly concrete proposals for the Capital Markets Union. That gives me hope that things will start to change.”
This article follows an earlier interview with De Vijlder: William De Vijlder reflects on 40 years of economic waves: ‘We quickly forget turbulent times’.