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Talk of uniting Europe’s financial markets has for more than a decade been mostly just that: talk. So now the EU has scaled back its ambitions. Rather than being disappointed, however, executives at many of Europe’s largest banks are more excited about the project than they have been in years. It turns out that in the pursuit of “capital markets union”, less might be more.
Deutsche Bank chief Christian Sewing thinks so. Earlier this month he told attendees at a conference that, while he doesn’t want to get too excited, he sees opportunities that “were clearly not there six months ago”.
Is he right? In principle, the arguments for deeper and less fragmented capital markets are obvious. The EU accounts for around 17 per cent of global GDP, but hosts only five of the 50 largest companies in the S&P Global 1200 — LVMH, SAP, Novo Nordisk, Hermes and ASML. If the €10tn sitting in cash accounts across Europe could flow into investments more seamlessly, it would be easier for businesses to grow and households to build wealth.
Until now, such plans have tended to run into opposition from national governments. There are two reasons to be more optimistic this time. Internally, the European Commission seems to have learned from previous mistakes by focusing on smaller but achievable steps. Its plans for the “Savings and Investments Union” — no longer the Capital Markets Union — talk of giving priority to limited but impactful actions.
Externally, geopolitics — namely the White House’s increasingly tense interactions with Europe — increase the sense that Europe’s companies ought to be less reliant on US funding. Some executives are privately hopeful that Germany’s incoming chancellor Friedrich Merz shares their belief that Europe faces a crisis if it doesn’t take action.
Some pieces of the puzzle are harder to put together. Unifying national insolvency laws or coordinating tax incentives to encourage investment in European assets, for example.
But even lower hanging fruit like reforming securitisation regulations could have an impact, particularly for banks: Apollo Global Management estimates that making it easier for banks to parcel up and sell on loans, and for investors to purchase them, could enable an extra €1tn in lending. European issuance of €245bn last year was only 16 per cent of the US total, according to the Association for Financial Markets in Europe.
Europe has managed to squander good ideas through inaction before, and it may again. But an important signal will come with the commission’s next update on securitisation, which is due before the summer and will be one of the first concrete tests of its newfound ambition.
If executives’ optimism proves well placed, investors will follow suit. A strong recent run in European bank stocks has raised questions over what it would take to give them a further leg up. Genuine progress on capital markets union could be an answer.
nicholas.megaw@ft.com
