ECMI Roundtable reviews the mid-term review of the CMU Action Plan

On June 8th, the European Commission reported on the progress made so far in implementing the 2015 Capital Markets Union (CMU) Action Plan. The mid-term review was also the occasion for setting out nine new priority actions with a timeline to be unveiled in the coming months. These recent developments provided the focus of discussions at an ECMI Roundtable on July 4th at CEPS, moderated by Fabrice Demarigny, Chairman of ECMI, and with the participation of Niall Bohan of DG FISMA in the European Commission and Georg Ringe, Director, Institute of Law and Economics, University of Hamburg. Vincenzo Bavoso, Assistant Professor in Commercial Law, University of Manchester also contributed via Skype.

At present, capital markets have attained different stages of development throughout Europe, as reflected in an uneven matching of supply and demand on a cross-border basis. Against this background, participants at the roundtable agreed that strengthening the long-term savings and investment channel through well-functioning, deeper and highly integrated capital markets remains a priority. It was thought that this would then lead to more alternative financing sources for companies, better options for retail/institutional investors and enhanced market-based, private risk-sharing mechanisms. In particular, although there are some signs of change in internal markets, notably in debt instruments (corporate bond issuance and private placement of small debt), it was acknowledged that Europe is still struggling with equity issuance (pre-IPO and IPO). Despite the Commission’s efforts (especially for venture capital and asset managers), there is thus a need to make it rewarding and interesting for the suppliers of capital (e.g. institutional and retail investors). Moreover, there is also an issue with product design, which could be addressed by tapping into the investment knowledge and experience of the insurance and fund industries’ well-known problems (e.g. retirement savings).

The proposed Pan-European Pension Product (PEPP) was cited as a good example and a promising starting point. Importantly, it was felt that capital markets should become useful to banks in terms of meeting refinancing needs, for example using covered bonds and other instruments to fund their loans and bank balance sheet management (through securitisation). It was noted that a big chunk of the Commission’s work is dedicated to the development of a secondary market for non-performing loans, but various frictions, such as tax and legal barriers, inhibit progress. In conclusion, a consensus was reached that Capital Markets Union (CMU) will not be completed in the next few years; there is no finish line in capital markets construction and there will always be a next step.