The Capital Markets Union is one of the flagship initiatives of the Junker Commission. It has a rather surprising aim: whereas the Banking Union aims to make the European banking system safer and to protect public money, the Capital Markets Union aims to increase the competitiveness and profitability of the EU finance industry (hence the support from the financial industry) by developing non-bank lending, or “shadow banking”, in Europe. The hope is that this will translate into growth and jobs in the rest of the economy.
At Finance Watch, we doubt that the framework proposed for CMU can deliver its economic growth objectives. We are also concerned that it could increase financial instability. By promoting securitisation, market-based banking and collateralised funding, the CMU replicates what was happening pre-crisis.
The CMU goes against the lessons from the crisis by promoting the banking model that proved the most fragile and the financing channels that generated ‘domino’ effects. The clear shift from “we need to regulate shadow banking” to “we need to promote shadow banking” illustrates the change in political momentum and suggests a renewed, short-sighted focus on growth at any cost.
Finance Watch has analysed the CMU proposal in detail. Our view is that:
- The purpose of the CMU is not financial stability but short term growth and the increased profitability of the financial industry;
- It is likely to create more instability in the system, and it distorts attention from much-needed but not yet implemented post-crisis regulation;
- The CMU will not bring additional financing but lead to more expensive loans for borrowers such as SMEs;
- For retail investors and pension funds, the increase in expected returns will mean more risks being taken with their money.
Civil society’s voices and concerns deserve more attention from policymakers, so the potential outcomes of the CMU do not end up repeating the effects of the crisis on households and SMEs. The post-crisis agenda is far from being completedand yet we are already going back to business as usual before the crisis.
To help feed this important debate, Finance Watch replied to the Commission’s CMU consultation earlier this year. We also produced a webinar, “Understanding the Capital Market Union”, to answer key questions about CMU and explain why citizens should care. We invite you to read and share our short report, “The Capital Market Union in 5 questions”, also available in French, Polish, Italian and soon in German.
Many other civil society organisations are also concerned about CMU and have been working to make their concerns heard: NGOs including ShareAction, SOMO, The World Future Council, FERN, Global Witness and FoEE, Frank Bold, consumer organisation BEUC and employee representatives UNI – among others – contributed to the Commission’s consultation. Academics have also been working to alert policymakers to the further risks that CMU might create.
It seems, however, that these voices are being given limited consideration and their well-argued concerns are not being taken into account as they should. It is telling that only two representatives of consumers and citizens (Better Finance and Finance Watch) were invited to the Commission’s event on Tuesday to discuss the CMU and they were on the same panel.
This calls for the Commission to re-consider its definition of the stakeholders in this debate – and to make it broader and more inclusive.
The general public also needs to become more aware of these plans and their impact, so they can engage with local elected officials in every Member State.
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