The lack of progress in achieving a single capital market that the European economy needs can be explained “largely by the vague definition” of the capital union and the “consequent piecemeal legislative approach” according to the President of the ECB.
The President of the European Central Bank, Christine Lagarde, said she feared a “slow death” of the capital markets union project, failing to harmonize legislation between countries, in a speech delivered on Friday. As Europe loses ground in innovation and geopolitical tensions rise, Capital Markets Union becomes more urgent than ever, Christine Lagarde told a congress in Frankfurt.
But this project could suffer a “slow death by an accumulation of small wounds”, because “special interests oppose or weaken each legislative measure”.
The lack of progress in achieving a single capital market that the European economy needs is explained “largely by the vague definition” of the Capital Union and the “consequent piecemeal legislative approach”, a she explained in front of an audience of bankers. The interests of member countries diverge on the capital markets union, a veritable sea serpent of European summits.
Since 2015, more than 55 regulatory proposals and 50 non-legislative initiatives have been launched, noted the central banker. This has come “at the expense of depth”, which has allowed the Capital Markets Union to be “dismantled by particular national interests, which perceive one initiative or another as a threat”, according to her .
A European financial policeman modeled on the American SEC
As possible remedies, the former director of the IMF first proposed a “European savings standard” supposed to encourage investment, with investments supported by harmonized tax incentives. Currently, European savings remain mainly invested in low-yielding deposits. Furthermore, the savings of Europeans remain mainly invested within national borders due to a fragmented and costly market infrastructure, causing institutional investors to favor American markets.
To overcome these obstacles, Christine Lagarde took up the idea put forward a year ago of a European financial policeman modeled on the American SEC, in order to harmonize practices and facilitate cross-border investments. Finally, venture capital in Europe represents only a third of that carried out in the United States, which requires removing bureaucratic barriers limiting the attractiveness of high-growth companies, according to the central banker.
