Financing the European Transformation - The Importance of a Capital Markets Union and How to Get There

In 2017, Viral Acharya and I have written a report under the European Commission’s initiative “Challenges to Integrated Markets”, in which we outlined challenges to the Capital Markets Union.

The European Transformation requires a significant amount of private capital. To raise these funds, we need to make progress w.r.t. these issues.

Here are the key challenges that we have outlined in our report:

• Government bond markets in the Euro Area are highly fragmented causing further fragmentation in bond and equity markets.

• Capital Markets Union with fully integrated capital markets across member countries can only work when the status of member country sovereign bonds as risk-free assets is restored.

• A Banking Union and Fiscal Union are both required for this outcome.

• However, the Banking Union remains an unfinished project without a European deposit insurance framework and there is little consensus at the moment for a fiscal union in the Euro Area.

• It appears thus that the fate of the Capital Markets Union solely rests with the European Central Bank in the near to medium term.

It appears as if we had lost sight of these bigger goals during the last years and the challenges are as relevant today as they were 5 years ago.

Please find the full report here that contains a lot of qualitative and quantitative analyses.

However, we focus solely on the relevance of the “Three Unions” and specifically the Banking and Fiscal Union. There are many more issues that need to be addressed to unlock the potential of Europe’s capital markets. If you have comments and thoughts, please get in touch. I am curious to learn more about what needs to be prioritized.