Response to the EC on the Capital Markets Union Green Paper

In an environment in which Europe needs to reduce its dependence on bank lending, economic development can only be financed through a greater share of financing from capital. The urgency of developing market-based financing has been recognised at the highest political levels in Europe, and most recently by the European Commission President in his Political Guidelines for the European Commission. Yet, Europe’s capital markets are far from meeting these needs. The EU’s markets are falling in the global ranking, having slid from 2nd place behind the US to 3rd place behind the US and Asia. Similarly, stock market capitalization is only 55% of the EU GDP, whereas bank credit to the private sector is 104% – almost the reverse of the ratios in the US, 136% and 43%, respectively. By various indicators, European markets fail to catch up with their peers from the Americas or Asia. Out of the top 26 IPO markets, only six of them are from the EU (another two from the rest of Europe), and none of them in the top five. In addition to the negative implications for economic recovery, these are also worrying indicators for Europe’s global economic power.

As the operators of Europe’s Regulated Markets, FESE members believe that a fundamental reorientation of European policies is needed to serve the original goals of the Single Market better at this current point in time. A re-orientation is critical to achieving the objectives of “Europe 2020”, the EU’s growth strategy for the current decade. Significant progress has been made, especially in terms of regulation (where rightly a lot of focus has been post-crisis). However, it will be crucial that the Capital Markets Union helps to move the pendulum towards more market orientation. FESE considers that more financing through capital markets helps achieve not just greater amounts of financing but also higher levels of innovation, efficient risk management, savings mobilisation, wealth distribution and job creation – which would serve the Union’s 2020 objectives on employment, innovation, education, social inclusion and climate / energy.