Burkhard Balz: Global competitiveness of the European financial
market
Keynote speech by Mr Burkhard Balz, Member of the Executive Board of the Deutsche
Bundesbank, at the Annual Reception of the European Parliamentary Financial
Services Forum (EPFSF), Brussels, 6 September 2023.
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1 Introduction
Ladies and gentlemen,
I have always looked back fondly to my time as a Member of the European
Parliament. Back then, one of the jobs that I especially enjoyed was my work as part of
the European Parliamentary Financial Services Forum. So, of course, I was very happy
to accept your invitation to this event today and I am delighted to be here (once again).
2023 marks the anniversary of two important events in Europe. 50 years ago, the
European Community was enlarged for the first time with the accession of the United
Kingdom, Ireland and Denmark. This was the first of many rounds of expansion.
And many countries are still striving to join the EU. This is a very impressive sign of how
attractive our community is, despite Brexit. 30 years ago, the European single market
raised Europe's economic integration to a new level. 30 years later, we can safely say
that the single market has been a success story.
An important part of this success story is also the gradual convergence of formerly
national financial markets. Much has already been achieved in this regard - particularly
on account of the lessons learned from the financial and sovereign debt crisis from
2007 onwards.
As part of the banking union, common supervisory and resolution mechanisms have
been created. Efforts have begun towards the harmonisation of national deposit
guarantee schemes. The European financial sector is currently in a good position. Proof
lies, not least, in the resilience of the European banking sector following the turmoil at
banking institutions in the United States as well as Credit Suisse during the spring of
this year. Nonetheless, the integration of European financial markets is still incomplete.
2 Where do we stand?
Whilst a lot of progress has already been made towards the banking union - such as
the Single Supervisory Mechanism and the Single Resolution Mechanism - much work
remains to be done on the capital markets union. In 2015, the European Commission
launched its first action plan for the capital markets union, aiming to mobilise more
private capital and create incentives for cross-border investment by removing regulatory
barriers. In 2020, it adopted another action plan with the goal of making Europe a true
single market for capital.
However, despite these initiatives, cross-border financial activities in many areas have
not increased noticeably in recent years. This means that opportunities for providing
enterprises with easier access to funding are not being exploited.
In the EU, corporate financing using equity and debt securities remains
underdeveloped by international standards.
It is difficult for small and medium-sized enterprises (SMEs), in particular, to tap
into the capital market.
And, for start-ups, a lack of venture capital is leading to financing problems.
Action is clearly needed. Deepening the capital markets union is therefore a key
building block in the further development of the Economic and Monetary Union. This
has been particularly true since the withdrawal of the United Kingdom and, with it,
London, which had been the dominant financial centre of Europe until then.
3 Reasons for a capital markets union
Deepening the capital markets union could pay off in two ways. Removing the existing
obstacles to investment and free capital market flows could help not only to promote
stronger growth, but also make capital markets more resilient.
Integrating capital markets can contribute to financial stability by fostering the
diversification of funding sources across national borders and by strengthening private
risk-sharing through the expansion of equity financing. A look across the pond shows
just how useful this would be: at present, risk-taking by the private sector provides
much more of a cushion against economic shocks in the United States than it does in
the European Union, for example.
At the same time, deepening the capital markets union would strengthen the EU's
global competitiveness. It would also promote both Europe's strategic autonomy and
the international role of the euro. For enterprises, a harmonised, broad-based and
deeper financial system could help them to finance and successfully navigate the
necessary ecological and digital transformation.
4 What is the problem, and what needs to be done?
If the potential benefits are so obvious, then why is progress so sluggish? Events such
as Brexit, the COVID-19 pandemic and geopolitical tensions have delayed efforts in this
area and pushed the issue into the background. Another challenge is the fact that, in the
EU, responsibility for fiscal and economic policy remains largely at the national
level. Ultimately, it is a political question: what is the right balance between
centralisation and subsidiarity?
There is certainly no easy answer to this question, and the solution will have to be
constantly rebalanced in the political discourse. In my view, it is therefore not so much a
question of taking a "giant leap", but more of specifying and implementing existing
considerations. And the clear aim here should be to make European capital markets
more attractive. This is something for which harmonised, reliable and uncomplicated
legal frameworks are crucial.
The action plan presented in 2020 already provides very concrete recommendations for
a total of 16 areas. One of these areas is the securitisation market. Here, it could be
possible to stimulate the market by reducing any unnecessary regulatory barriers faced
by market participants. This would bridge a gap between bank financing and the capital
market, as securitisations could help to distribute risk more efficiently in the capital
market.
Another area is the currently highly divergent national regimes for corporate insolvency
resolution. The lack of harmonised insolvency rules is currently considered one of the
main obstacles to the free movement of capital within the European Union.
The Eurosystem, too, plays a role in strengthening the capital markets union:
through its objective of price stability, which is a major factor that makes
eurodenominated assets attractive;
through banking and financial supervision, which inspires confidence amongst
investors;
and by strengthening market infrastructure, for example through T2 in payments
and securities settlement, in which the Bundesbank plays a major part in
development and operation.
5 Conclusion
Ladies and gentlemen,
Anniversaries are an occasion for joy, and, at the same time, a good time for
reflection. What is clear is that Europe's success story has not yet reached its
conclusion, and more progress is needed on the capital markets union, in
particular. There is no shortage of big, new ideas here, as meaningful proposals are on
the table.
But, as former German Federal President Joachim Gauck once said: "More Europe
requires more courage from everyone." Policymakers and the financial sector now need
the courage to flesh out and implement these proposals in order to remove any
obstacles on the road to deepening the capital markets union.
It's a lot like running hurdles in athletics: speed is important, but so are good timing and
fitness. You only reach your goal once you've successfully cleared all of the obstacles
in your path. Now is a good time to clear some more of these hurdles, which will surely
bring us closer to the finishing line.
Thank you.