error! unknown document property name. “ on the right track : why is the capital markets union important and how do we get there ” speech by governor knot at the omfif - dnb conference ‘ developing european capital markets ’ 3 november, 2020 error! unknown document property name. let me start by thanking you all for being here today. if you travel by train from the city of bordeaux southward to spain, at the border you will have a slightly strange experience. since the rail gauges in france and spain are of a different width, the rail bogies, that ’ s basically the wheels of the train, have to be replaced. a very heavy machine lifts the train up, the bogies are rolled away and replaced by others. it takes about one hour before the traveler can resume his or her journey. this rather remarkable example of systems that do not fit together, and that reminds one of the nineteenth century, is not uncommon in european capital markets. this becomes clear if you compare it with the united states. consider a us investor located in iowa who wants to invest in a firm located in florida. information on the firms finances can be readily accessed via the securities and exchange commission, while securities and insolvency law are of course similar across states. now consider the same process for a belgian investor aiming to invest in portugal. firm information is scattered across business registries, while the investor has to accustom itself to various local rules. this goes from small discrepancies, such as rules on shareholder disclosure, to large differences, such as insolvency laws. whereas large areas of the european economy have become more and more integrated, capital markets in europe are still fragmented to a large degree. this results in real costs. the capital markets union has clearly moved on from being a ‘ nice to have ’ to a ‘ need to have ’. why is a unified european capital market important and how do we get there? that is the topic of today. i think the importance of this topic is already reflected in the quality of speakers on the agenda for today. so allow me to thank all the speakers for being here, and i look forward to our exchange of insights and ideas. being the first speaker, my aim is to set the stage for a fruitful discussion in the later sessions. in my remarks today i will first briefly share my view on why the capital markets union is so important. as the potential benefits of the cmu are numerous, i will stick

public finance. finally, i would like to address some misunderstandings about the pact. it is often said that the major drawback of the pact for stability and growth is that it takes away all flexibility and sovereignty in the budgetary area. this is not correct. as soon as a structural budgetary position of close to balance is reached, any negative cyclical development is allowed to feed into the deficit, that is, up to the 3 % limit, agreed upon in the maastricht treaty six years ago. calculations show that this gives ample room for the so - called automatic stabilisers to do their job. that is to say, if in times of economic fortune member states establish sound fiscal positions, they will have sufficient budgetary room to react adequately to economic downturns. in this respect, the pact for stability and growth is nothing more than the communal equivalence of the dutch saying ” save first, spend later ”. thus, budgetary flexibility is explicitly part of the pact. as regards sovereignty, it has to be recalled that only the level of the deficit will be restricted. no limits or guidelines will apply to the size or composition of government receipts and expenditures. the sovereignty of national parliaments will remain fundamentally intact. in my opinion, it is even of the utmost importance that this sovereignty will remain intact : if the stability and convergence programmes are to be credible, they have to be supported by the national parliaments. some critics of the pact claim that it allows for too much flexibility. to them, i would like to emphasise that the pact for stability and growth will introduce a high degree of automaticity in the assessment of member states ’ budgetary policies. only under exceptional circumstances – such as occurred in less than 6 % of the cases in the past 35 years – may member states be allowed a budget deficit above the 3 % - reference value of the maastricht treaty ; even then this excess will need to be temporary and limited. thus, the pact constitutes a careful balance between flexibility and automaticity, and between prevention and deterrence. as you might know, the details of the pact for stability and growth are now being worked out. i expect that at its june 1997 meeting in amsterdam, which will be hosted by de nederlandsche bank, the european council will reach full agreement on this most important issue. to conclude, from a central banker ’ s perspective, the crucial issue for stable and sound economic developments is the impact of stability. more specific, what