The writer is managing director of Deutsche Börse
“Recovery, power, belonging » (revival, strength, belonging) is the motto of the French Presidency of the European Council. It talks about EU sovereignty, the future of our society, our values and our community and the future of the bloc as a thriving global business destination.
With that, a familiar project has returned to the top of the agenda – the capital markets union. Although we’ve been talking about it for years, little progress has been made – whether through lack of will or ability, I’m not sure. But if we are serious about UMC, we urgently need to change our strategy.
With or without the CMU, European capital markets are vital for its future. But despite years of efforts to strengthen them, the EU is falling behind. Last year there were around 2,700 IPOs globally, but less than 12% of them were in the EU, while over 60% were in the US and in Asia.
The number of listed companies in Europe is also decreasing, while EU capital markets remain highly fragmented. Moreover, with the departure of the United Kingdom from the EU, Europe has lost an important voice in its favour.
As the City of London launches regular consultations on the future of its capital markets, the EU must realize that its priorities, including digitalisation andgreen transition” — cannot be achieved without better and deeper capital markets. The investment required is too great to be borne by the banks alone. Individual countries are also overcharged.
I therefore welcome the stated objective of Bruno Le Maire, the French Minister of Finance, who declared that, to finance the green transition, for each euro invested publicly, we must secure at least 3 euros of private investment. The global success of the future EU economic model can only be assured if we take this formula seriously.
But if Le Maire’s ambition is to be realized, a cultural shift is needed. We need to stop demonizing capital markets, an attitude that is all too common in some circles in Europe – and totally different from that in the UK and the US.
While this is partly a lingering effect of the 2008 financial crisis, its roots run much deeper. It is therefore imperative to attract the whole of society to the capital markets. The European Commission’s push for a retail financial strategy is a useful step in this direction, as it requires increased investment in economic and financial education. We need to empower our citizens to invest safely and wisely and provide them with a range of attractive products and incentives to do so.
A central element of this is a commitment to transparency and integrity. We must stop deceiving ourselves: we are far from having a transparent capital market in the EU. Transparency in EU equity markets is now significantly lower than it was before the introduction of Mifid regulations: only around 35-50% of trading volume is executed on trading venues transparent. Today, more than 10 years after the financial crisis, 92% of derivatives trading in the EU is over-the-counter. And we have created an EU bond market regime in which just 3% of bond instruments are considered transparent.
We have a regulatory framework that not only continues to tolerate conflicts of interest and opacity, but actively encourages them.
To be effective, EU capital markets also need large, strong stock exchanges that can compete globally, especially with their US counterparts. Europe will never be truly “sovereign” without them. Otherwise, it would be playing with the economic future of our continent.
Acting now is essential. The historic transformation of global capital markets through environmental, social and governance investing and digitalization creates a unique opportunity. Europe is a global leader in creating an ESG framework and we can leverage this leadership to shape forward-looking and competitive capital markets.
EU exchanges and market infrastructure operators are the backbone of the Capital Markets Union and our future sovereignty. But our exchanges need scale to live up to this responsibility and prepare for global competition. We need policies and a regulatory framework that recognizes this reality and facilitates our evolution, rather than hinders it.
For us to succeed in this endeavour, Europeans’ confidence in the capital market must be strengthened. This, in turn, requires us to ensure transparency, integrity and stability — something we can only do if our efforts are backed by a strong EU-wide financial market infrastructure.