A Dutch MEP argues that the EC must think more ambitiously and redirect the Capital Markets Union (CMU) initiative to focus on supervisory convergence, sustainable investment and tackling debt bias.

The European Commission's flagship financial initiative, the CMU, was first presented in 2014. By the following year a broad set of initiatives were clustered under the CMU umbrella, including measures affecting venture capital, tax incentives, a review of the corporate bond markets and opening up financial services to the securitisation market. These initiatives are to be implemented by 2019.

'Hodgepodge'?

But Paul Tang, a Dutch Socialist MEP and a member of the European Parliament’s Committee on Economic and Monetary Affairs, has called the CMU's goals “a hodgepodge of actions” and a “mixed bag of priorities” that lead to “a dead end road”.

In an opinion piece for the publication Euractiv, the Dutch MEP suggests that, despite the complications the CMU initiative is now facing due to Brexit and the withdrawal of the City of London, there is an urgent need to reconsider the opportunities afforded by the CMU and “to drastically change its direction”.

The real challenges for EU financial reform

Reforming the securitisation market was one of the primary goals for the CMU – one that “could generate up to €150bn in additional funding for the European economy” said the Commission in October 2015. But Tang writes: “Securitisation was deemed to be a flagship of new investment for citizens, but in practice the repackaging of loans had mostly proven to work to the benefit of banks and to be a potential doomsday machine for society.” The MEP is convinced that the CMU's defined actions will not succeed in creating a more stable financial landscape for citizens and SMEs. He argues that the real problems facing the EU financial system include:

• the EU's financial system is over-leveraged;
• financial supervision is fragmented;
• there are 'a jungle' of products; and
• 80 per cent of EU lending is provided through banks and not through capital markets.

4 ways to really tackle EU financial market weakness

Tang goes on to outline the biggest challenges that the Commission should be trying to tackle to create a stable financial system in the EU:

1. Through the common consolidated corporate tax base (CCCTB), the Commission could “remove the debt bias”, making it more attractive for companies to finance through capital markets rather than through debt (which has tax-deductibility of interest-payments).
2. After Brexit, the EU-27 should renew efforts to create supervisory convergence throughout Europe.
3. The Commission should focus on establishing standards, incentives and conditions conducive to financing green energy investments and initiatives.
4. The Commission should also seek to set an regulatory example globally, maintaining high standards, for example on tax havens and on sustainable investment.