- "Europe's future in global capital markets"
FESE Convention
Paris, Thursday 22nd June 2017
Closing remarks by François Villeroy de Galhau,
governor of the Banque de France
Contact presse : Clémence Choutet (01 42 97 74 51 ; clemence.choutet@banque-france.fr).
Ladies and Gentlemen,
It is a pleasure to be with you today to close this FESE convention. When
reflecting on Europe's future in global capital markets, we all agree that
the
Brexit vote last year has significantly shifted the European landscape. One
year on, it is still bad news for all of us, but much worse for the United
Kingdom itself, and each day more so. Faced nevertheless with Brexit, we
should at least be consistent. And the EU-27 is being so, starting with Mr.
Macron and Ms. Merkel: we are hoping for a positive agreement, but there can
be no cherry-picking in the single market, and no access without common
I'd like to
rules. Furthermore, stress two imperatives: first, do not let sources of
systemic risks for the EU grow outside the EU; second, speed up the creation
of a "Financing Union for Investment and Innovation" to boost productive
investment thanks to a better circulation of savings across borders. Let me
elaborate on these two imperatives in some more detail.
**
1. Do not let sources of systemic risks for the EU grow outside the EU
Let me start with the first imperative. The main issue here is that some
financial market infrastructures, which are key for the EU, will soon become
off-shore to the EU as a consequence of Brexit. This is particularly problematic
when these infrastructures may put the EU's financial stability at
risk: some
"too big to
central counterparties (CCPs) for instance can be considered to be
fail" entities, especially since clearing is
mandatory. This is a specific concern
for the euro, compared to other currencies, as European savings management
is almost totally dependent on London-based financial players and market
infrastructures. And yet we cannot reasonably expect that these global
financial market infrastructures take into account, in their operations and risk
management, the financial stability of the euro area, on top of the financial
stability of their own jurisdiction.
Therefore, since, regrettably, London will soon be outside the EU, the current
setup is no longer adequate. Replicating for clearing activity in the euro area
the extraterritorial approach developed by the US authorities cannot be a
solution, because of the specific position of the EU capital market vis-à-vis
London, and because we know by experience that in times of stress the views
of the domestic authorities prevail when interests diverge.
So, what should we do? In my mind, a location policy is the most efficient tool:
first, it would make it possible to maintain effective control over the activities
denominated in EU currencies; and second, it would foster a better and more
less dependent on "too big to fail entities",
balanced clearing market structure,
- -
which would enhance global and not only EU financial stability. In this
regard, I would like to acknowledge the valuable proposals recently made by
the European Commission, even if they could be strengthened and
streamlined: those CCPs whose activities are "super-systemic" for the EU
market should indeed establish themselves in the European Union. A location
policy is the only viable mechanism to guarantee that European authorities,
and the Eurosystem in particular, can control and manage the risks that CCPs
are likely to pose to the financial stability of the European Union. In order to do
so, the concept of "substantially systemically important should however
CCPs"
be clearly defined with objective, rule-based requirements; euro-denominated
clearing activities should be located in the European Union when they exceed
certain thresholds.
up the creation of a "Financing Union for Investment and
2. Speed
Innovation"
to speed up the creation of a "Financing Union for
The second imperative is
Investment and Innovation" at the
European level. The need for such a
Financing Union stems both from a weakness and an opportunity. The
weakness is that the euro area faces persistent financial fragmentation. But
the opportunity lies in its abundant resources: savings exceed investment by
EUR 350 billion per year in the euro area, which is more than 3% of GDP. An
obvious way to boost growth in the EU is therefore to better steer our
abundant savings towards the financing of investment and innovation across
address the persistent "investment crunch"
borders. We will thereby be able to
-
that followed the financial crisis the share of investment in GDP remains
below its value at the turn of the century, standing at 20% in 2016 compared to
22% in 2000-2005.
The success of this Financing Union lies in the capacity to provide businesses
with more equity financing solutions, supporting the scaling-up of SMEs.
Europe is lagging far behind in this area: such financing only represents 68%
of GDP in the euro area compared with 128% in the United States in the fourth
quarter of 2016. Naturally the building blocks of such a Financing Union
already exist with the Capital Markets Union, which supports the diversification
of private financing; the Juncker Investment Plan, which channels public and
private investment into the real economy; and the Banking Union, which
tackles the fragmentation issue. These initiatives have to be brought together
into the Financing Union in order to go beyond administrative or bureaucratic
borders, create synergies, and therefore give new impetus to this agenda.
Think for instance of a real European venture capital market to promote equity
financing, which is the most effective way to finance innovative businesses at
different stages of maturity (seed, venture, and growth).
More specifically, progress towards a Financing Union for Investment and
Innovation is needed in three key areas:
- First, completing the Banking Union. This means, as a priority, finalising the
Banking Union's second pillar, namely the single resolution
mechanism.
Within a strong Banking Union framework, banks in the euro area will thus
be able to engage in cross-border consolidations on a sound and safe
basis and therefore contribute further to reducing financial fragmentation.
- Second, thoroughly reviewing the incentive schemes for cross-border
investments, notably by promoting further convergence of tax and
regulatory regimes. Enhancing the free movement of capital within the EU
requires addressing a wide range of legal impediments, including
enhancing the predictability of insolvency frameworks, eliminating fiscal
biases that penalise equity, and further increasing the transparency and
harmonisation of accounting rules for small businesses.
- Third, expanding the supply of financial intermediation services. This can
take the form of new pan-European savings products and investment
- -
vehicles more long-term and risk-oriented or new market initiatives in
green bonds, private placement or securitisation for instance.
Complementary steps could include creating pan-European venture capital
funds and leveraging on the development of FinTechs, while maintaining a
high level of consumer protection and efficient conduct of business rules in
a digital environment.
**
After Brexit and Mr. Trump's election,
Let me conclude with a general remark.
many expected a euro area crisis. So far, exactly the opposite has happened:
European growth is accelerating, at close to the pace of US growth. The
French election gave a fresh political impetus to stability and reforms; public
support for Europe has significantly increased: up 18 percentage points in
France from last year (56% in spring 2017) according to a recent survey by the
Pew Research Center; and the same trend can be observed in a number of
countries. Most importantly, we in the EU-27 should not devote all our energy
to Brexit, at the expense of investing in our own future. In this regard, it is the
right time to move up a gear. To boost European growth, financial levers are of
the essence, but economic levers play a role too. This is the reason why I
often speak of Europe's "growth triangle". In my view, Europe needs to
activate three levers: the Financing Union for Investment and Innovation that I
have just described, but also implement national structural reforms on the one
hand and a better euro area policy mix on the other. National structural
reforms are a prerequisite for each country to unleash our collective growth
potential. In addition, they would amplify the effects of the Financing Union:
Union would foster firms'
such a ability to invest and national reforms would
firms'
willingness
foster to invest. The third lever is a euro area policy-mix
based on a better coordination of macroeconomic policies. This requires a
collective economic strategy whereby Member States seal a deal: if we
-
combine more structural reforms where they are needed in France and Italy
for instance -, and more fiscal or wage support in countries with room for
- -
manoeuvre for example, Germany and the Netherlands growth and
employment will undoubtedly be stronger everywhere in Europe. If we seize
Europe's time
this opportunity, will come. Thank you for your attention.