Channeling Europe’s savings into growth


March 9, 2023

By Paschal Donohoe (President of the Eurogroup), Werner Hoyer (President of the European Investment Bank), Christine Lagarde (President of the European Central Bank), Charles Michel (President of the European Council) and Ursula von der Leyen (President of the European Commission)

Europe needs to accelerate its green and digital transformation. For this we need to complete the Capital Markets Union to provide effective financing. This is what the five presidents of the ECB, EIB, European Council, European Commission and Eurogroup advocate in one office.

The European Union is determined to advance its green and digital transformation. What we decide today will affect generations to come. It’s our shared responsibility to get it right. Creating net-zero industries, increasing technological competitiveness and diversifying supply chains will be paramount to Europe’s continued prosperity and strategic sovereignty in the decades to come.

The need for financing is enormous, and the lion’s share must come from private capital. The role of public investment is to provide policy direction and to attract massive inflows of private capital, including through the involvement of the European Investment Bank Group and national promotional banks.

We were too slow with the Capital Markets Union

The single market has underpinned Europe’s prosperity since its inception 30 years ago, removing barriers to trade within the EU and attracting foreign investment. And economic and monetary union was another driver of market integration. But we have been too slow on one key building block for too long: the capital markets union.

Banks in Europe currently provide the majority of investment financing. However, they alone cannot help the EU win the global investment race, especially when compared to the United States. Bank loans account for 75% of corporate lending in the EU, bond markets for 25% – while in the US it is the other way around.

Our start-ups and scale-ups are looking for capital. Businesses, especially SMEs, are struggling to find the patient and risk-taking financing they need to invest in the green and digital transition. For example, the EU’s market capitalization as a percentage of GDP is less than half that of the United States and lower than that of Japan, China and the United Kingdom. Still, Europeans save far more than Americans.

It is our responsibility to ensure that European companies have the financing options they seek here in the EU. We need a capital markets union that channels Europe’s huge savings into the growth engines of tomorrow. We must overcome the current patchwork of national frameworks and, in some cases, underdeveloped capital markets to realize their full potential. This will strengthen the EU as an investment destination and make the euro an even more attractive currency.

The EU has already taken some crucial steps towards creating a single market for capital. Nonetheless, we must step up our efforts and our ambition to remove remaining barriers to cross-border finance and enable deeper harmonisation. These include better coordinated insolvency laws, more easily accessible financial information, easier access to capital markets, particularly for smaller companies, robust market infrastructures and more integrated capital markets oversight.

Deepening the Capital Markets Union requires a concerted effort involving policymakers and market participants across the EU. It needs strong political will and ownership at all levels of government. The European Parliament and the member states in the Council are needed to urgently conclude the negotiations on important legal texts. It requires courage and openness to change. We are determined to see progress.

Time is of the essence. We have made remarkable strides in European financial integration over the past two decades, but it is time to show greater ambition. A true Capital Markets Union is within reach. The coming decades will bring the greatest industrial change of our time. Our long-term competitiveness will depend on this. Let’s make sure we have the capital to make this happen.

This ECB blog post appeared as an opinion piece in various newspapers and websites across Europe.

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