Pierre Gramegna, former Luxembourg finance minister and managing director of the European Stability Mechanism, on Tuesday called for bolder steps towards creating better integrated financial markets in Europe. Reviving the EU’s ambition for creating a true Capital Markets Union is essential, he said, if Europe wants to broaden access to finance for businesses and achieve its sustainability ambitions.
Addressing an audience of capital market professionals at an event hosted by the Luxembourg Capital Markets Association, Gramegna pointed to other successful EU initiatives such as the 2013 Banking Union, which harmonized banking supervision across the EU, and the Ucits directive which spawned the asset management industry thirty years ago.
“To get the size we need, and to get a greener economy, CMU is key,” Gramegna said. “Creating a new framework can bring great benefits. Europe needs to act in this matter and needs to act together.”
Plans for a Capital Markets Union, known as CMU, were first presented in Brussels back in 2014 and aspired to give market finance a signicantly bigger role in Europe’s traditionally bank-financed economy. The EU has presented several CMU Action Plans since but only number of ‘low-hanging-fruit’ projects have materialized, such as securitisation. Almost a decade after CMU was launched, debt-based bank finance, as opposed to risk-based market finance, remains the main source of funding for EU-based businesses, unlike those in the United States.
Gramegna said the EU’s positive experience with the Banking Union shows that it is possible to achieve meaningful results if all stakeholders act together. “In acting on the Banking Union we have done the right thing,” he said, adding that the union’s Single Rulebook for EU banks could also serve as inspiration for financial markets, as a “combinaiton of what the EU can do with its regulatory framework”.
“On banks we have done much better,” he said. “The agreement on Banking Union in 2013 was reluctantly received, as a political agreement that we could not deliver on. Still, the essential pillars were delivered. I know, EDIS (European Deposit Insurance Scheme) was not. But Banking Union has brought more resilience, stronger banks - better capitalised, and better regulation.”
Drawing inspiration from the Banking Union, Gramenga suggested creating a “common single rulebook for capital markets” that respects the “necessary national specificities” to improve the functioning of European markets. “Let’s inspire ourselves by what we have done for the Banking Union.”
Gramegna, appointed as MD of the ESM earlier this year, said CMU is essentional for the EU to deliver on its sustainability agenda. He also said that CMU can be supported by “safe asset” bonds issued by EU-level institutions, such as the European Investment Bank, the ESM and the European Commission.