I’ve been spending a lot of time on aspects of capital markets union and the various sub-streams coming out of current discussions. I’ve endeavoured to maintain a balanced view on proceedings and tried to suppress any tendencies towards scepticism at the same time as I’ve jumped on over-exuberance or over-engineered posturing — as I see it – emanating from involved parties.
EU officials continue to bang the drum of CMU, which is not surprising given how much is riding on its successful outcome. But with the strategic aspects now ticked off; positioning papers issued and comment requested – and the theoretical case for capital markets firmly established on paper – the project needs to move quickly from the realm of hypothesis into the real world if it is to meet its 2019 deadline for implementation.
The implementation deadline may sound like a long way off but there’s a formidable amount of work to get through between now and then. With the convoluted decision-making process at play in the EU, it strikes me that there’s actually precious little time to get all the regulatory, supervisory and market structure ducks in a row.
Bear in mind we’re talking here about some truly daunting challenges if we’re planning to get to a truly pan-European solution: supervisory harmonisation, tax and accounting harmonisation, insolvency law and securities law harmonisation; creating a region-wide public SME database to promote transparency, comparability and facilitate the risk pricing piece; promoting and agreeing best-practice; and working towards single high-quality standards for the large array of market segments engaged within the discussion. Standards, by the way, that need to be user-friendly and ultimately uphold competitive solutions for market agents and users. Otherwise, the entire project will be pointless.
Such is the degree of difficulty of getting it all done that I’ve taken to wondering if the project is biting off more than it can chew in its current guise and whether officials would be better advised to take a more modular market segment-by-segment approach.
So my thought for a Wednesday: is CMU a project too far? I know the ship has already sailed, but still I wonder …
Ambition
Benoit Coeure, member of the ECB’s executive board, in a presentation scheduled to be delivered in Frankfurt on Wednesday, posed an interesting challenge: “It remains to be seen,” he notes in the conclusions page of his presentation, “how ambitious Europe wants to be in developing a genuine capital markets union. While some low hanging fruit should be quickly picked, we need to be bold in our objectives and give ourselves the tools which will ensure that the European Capital Market Union is a reality rather than a name”.
In taking CMU beyond quantitative convergence to supporting qualitative integration. Coeure reckons one end-game will be a more resilient EU economy. The role of capital markets in cushioning asymmetric shocks will enhance cross-border risk-taking, he reckons, while the conduct of monetary policy will benefit from an alternative transmission channel. And market-based alternatives for capital intermediation will, of course, help break the negative feedback loop between banks and sovereigns.
All fair comment, to be sure, but what about my point at the top about leading the grand project into the realm of Realpolitik? On that point, I was fascinated to see that the Konrad Adenauer Foundation is staging a CMU simulation game on Thursday at KPMG’s offices in London.
I gather the simulation was conceived by Professor John Ryan, research associate at the Von Hugel Institute of St Edmund’s College, Cambridge; and Gergely Polner, recently-appointed head of EU public affairs at Standard Chartered Bank but who’s prior career has been within the EU machinery.
I’m not entirely sure how it’s all going to be staged but the morning simulation, with finance ministry and central bank folk, European Parliament members as well as buy-side and sell-side market participants, and followed by unveiling of the results and discussion over dinner at StanChart’s HQ, sounds like a hoot. Results will be included in the public comment process. I do hope they video proceedings; I reckon it could go viral.
