Introduction

On 22-23 March 2018, the European Council will take stock of progress in delivering, inter alia, the Capital Markets Union (CMU) Action Plan. This is an important priority for the European Union and part of the Investment Plan for Europe. A single capital market benefits the EU as a whole, but has particular relevance for those Member States that share the euro as our common currency.

Deep and integrated capital markets foster cross-border private risk-sharing in the euro area and beyond, thereby boosting the productive and innovative use of private capital, broadening and diversifying the sources and means of funding to the real economy, and reducing the need for public sector risk-sharing. Alongside other factors the Commission has worked on, such as an integrated and fair labour market and a transparent tax system which is protected from abuse, and the reduction of non-performing loans, this is crucial for the EU economies' capacity to stabilise and absorb economic shocks that affect particular Member States, regions or sectors. Lack of financial diversification exposes the system to further instability caused by the volatility of some financial flows when there is a structural shock (see Figure). If European savings are invested in a diverse portfolio of financial products provided by a diverse range of actors across different Member States, their returns will be less subject to volatility and to the state of one individual economy.

Figure – Financial flows to non-financial corporations (EUR billions, net flows)

Source: European Central Bank and Commission Services calculations

Note: Data refer to yearly moving averages of quarterly net flows bewteen the fourth quarter of 1999 and the third quarter of 2017.

A successful Capital Markets Union, complementing the EU's Banking Union, also needs to open-up markets to give better access to finance for EU businesses and more and innovative investment opportunities for savers, who today have greater means to understand how their investments are used and a greater appetite for investor choice. That is why the transformation of capital markets needs to provide the tools to harness new opportunities offered by financial technology and sustainable finance, and to facilitate the transition to a cleaner, more resource-efficient, circular economy.

As the Commission set out in June 2017 with the Mid-term review of the Capital Markets Union Action Plan, we need to step up the level of ambition, to address the obstacles but more importantly to take advantage of those new opportunities.

This is why the Commission is also presenting an Action Plan on Financial Technology (FinTech) and an Action Plan on Sustainable Finance.

Drawing on the conclusions from the public consultation in March-June 2017, and taking account of the initiatives already presented, the Commission considers that a number of targeted initiatives are necessary at EU level to harness the opportunities presented by technology-enabled innovation in financial services. The FinTech Action Plan sets out clear and concrete steps to enable innovative business models to scale up, support the uptake of new technologies, and increase cybersecurity and the integrity of the financial system. It will ensure that the European financial sector remains innovative and competitive, without compromising financial stability and investor protection.

The Sustainable Finance Action Plan aims to create the conditions for more sustainable economic growth and development by reorienting capital flows towards more sustainable investments, such as the clean energy transition and the transition to a circular economy. Mainstreaming sustainability factors in risk management and fostering transparency and long-termism in public and private governance are also important objectives for this plan to channel more public and private investments towards sustainable development, in line with global commitments like the Paris Agreement and the 17 UN Sustainable Development Goals.

The need to progress with Capital Markets Union is made even more urgent by the future departure of the United Kingdom, as the EU's largest financial centre will leave the Single Market. As a consequence of this, we need an even stronger push for more developed, integrated and better supervised capital markets.

The European Council of June 2016 called for "swift and determined progress to ensure easier access to finance for businesses and to support investment in the real economy by moving forward with the Capital Markets Union agenda." The ECOFIN Council has stressed the importance of completing the Capital Markets Union by 2019 on several occasions and most recently in July 2017, where it renewed its commitment to the Capital Markets Union, and in particular to the full set of actions put forward in the Mid-term review, including the nine priority initiatives. The European Parliament Resolution of 19 January 2016 acknowledged the important role capital markets can play in addressing the financing needs of Member State economies and underlined that Capital Markets Union must place greater focus on the end-users of capital markets, i.e. companies and investors.

The Commission is committed to put in place all building blocks of Capital Markets Union by mid-2019. While first achievements and major milestones have already been reached (see table in annex), it is now the time to move ahead and make sure that all pending legislative proposals are completed by the end of the mandate. In addition, the Commission is today proposing further measures to develop and integrate EU capital markets, and the remaining proposals will be presented by May 2018 so that, with the necessary political will, legislation can be adopted before the European Parliament elections in 2019.

Going forward, the effective functioning of Capital Markets Union needs to be given a strong impetus by placing the building blocks around three mutually reinforcing dimensions: the EU Single Market, clear and proportionate rules, and efficient supervision.

1.Making the most of the Single Market through new European products, labels and passports

New pan-European products, labels and passports will ensure that investors, consumers and businesses can reap the full benefits of the Single Market (scale up in Europe and compete globally). New rules are already in place to to boost European venture capital funds (EuVECA) investment in start-ups and small and medium-sized companies and to promote a safe and deep market for Simple, Transparent and Standardised (STS) securitisation. If EU securitisation issuance was built up again to the pre-crisis average, it would generate up to EUR 150 billion in additional funding for the economy. The Commission has also proposed a new pan-European personal pensions label (PEPP) to empower consumers to save for retirement and to inject more savings into capital markets and hence channel additional financing to productive investments. The Commission calls on the co-legislators to finalise quickly their work on this proposal, so that all European citizens have access to a wide set of options to save for their retirement while benefitting from solid consumer protection.

To make progress also in other areas, the Commission is today proposing additional measures to develop new products and labels and to integrate capital markets: