The Capital Markets Union (CMU) is aimed at further developing market-based financing (also called shadow banking, or non-bank lending) in Europe. The Commission’s Action Plan and related proposals will be released tomorrow, Wednesday, 30th September 2015. So far – and despite its obvious public interest dimensions – debate on the substance of CMU has been confined to insiders and has taken place out of the public arena.
The CMU is unlikely to create sustainable jobs and growth. It focuses on increasing the supply of credit and does not address the root causes of lack of aggregate demand. The revival of securitization, for example, is unlikely to help SMEs as it is too complex and too expensive to work without subsidies. Additionally, there is no shortage of funding on average and banks can now lend more. There is therefore no obvious need to promote market-based banking over traditional banking.
While some initiatives in the CMU package are welcome, several others could create additional risks for the economy and for society at large, in Europe and beyond.
The organisations signing this statement, which include trade unions, consumer groups, development, and environmental NGOs and think tanks, have a variety of concerns about CMU. These include risks to financial stability, retail investors, pensioners and consumers, workers, and environmental, social and governance (ESG) issues. We therefore call for the debate around CMU to be opened up for discussion so that civil society proposals for greater transparency, investor protection, and an overall strengthening of regulation can be taken into consideration.
In addition, while the debate on CMU focuses exclusively on how to finance the economy, an equally important debate is needed on what we finance (e.g. decent livelihoods, fair jobs, investments addressing climate change, etc.).
The question also needs to be answered: who will benefit from the CMU? Arguably, the EU’s too-big-to-fail banks stand to benefit more than the 90% of SMEs for which capital market-based financing is largely irrelevant.
In summary, the CMU revives pre-crisis trends without adequately integrating the lessons from the crisis. It also marks a shift in the political momentum towards short-term growth and competitiveness at all costs, when what is needed is long-term sustainable development of the economy.
The CMU Action Plan comes with legislative proposals that will be discussed by the European Parliament and Member States. The Parliament will also reflect on the Action Plan as a whole and hold a debate with Commissioner Jonathan Hill. Civil society organisations call on policy makers to consider and integrate their concerns and proposals. As the financial crisis demonstrated, financial stability is a pre-requisite for creating sustainable jobs and growth.