17 May 2023
Capital markets union, a historic opportunity to boost growth
A brief analysis on Capital Markets Union and discussion with our expert, Juan Blasco, Global Head of Syndicate & Leveraged Finance EMEA at BBVA CIB
In the last month, there have been almost 275K public mentions related to Capital Markets. In our latest issue of our LinkeIn Newsletter Trending Data, we have cross-matched this data with the over 265K mentions linked to Single Market, Financial Integration and Monetary Policy, to offer you a brief analysis on Capital Markets Union. As usual, at BBVA CIB we have also discussed this with one of our experts, Juan Blasco, Global Head of Syndicate & Leveraged Finance EMEA, BBVA CIB to share his opinion on this matter.
A brief analysis on capital markets union
The project for the European Capital Markets Union (CMU) has attracted a great deal of interest since the European Union announced the creation of this idea in 2015. The main goal is to harmonize European markets and domestic regulations in order to promote more liquid markets for easy access to issuers and, ultimately, to make the European market more attractive for investors and savers. The CMU would become a key element for economic growth, accelerating innovation and job creation as well as contributing to financial stability in the region.
With the pandemic, the need to attract capital to rebuild all hard-hit sectors and companies has put this project back on the table:
- In September 2020, the European Commission published a new Action Plan with the aim of accelerating the CMU by seeking a greater financial recovery after the pandemic, with a view to expediting a possible "European Financial Union".
- In addition, in March 2023, several leaders of important European institutions published a manifesto in favor of the CMU, stressing the importance of attracting capital to be able to finance a much-needed energy and ecological transition for future generations. This will require a huge investment of private capital to undertake all the necessary technological advances, the creation of new clean industries and the diversification of supply chains.
The CMU's relevance is not just about being a project that concerns a few financial players in European places. The CMU is a tool with a much greater scope, which will channel the savings and investment of European citizens and help them harness the advantages of a common, competitive market that is attractive to international investors and ultimately enables the development of all the industrial, technological and social advances needed to achieve a greener and more sustainable future for all.
In the words of an expert
Currently, the bulk of corporate financing in Europe comes from the banking sector, while the remaining 20% is covered via bonds. In the United States, for example, the situation is reversed. To help European companies in their growth and internationalization plans, it is important to have an attractive institutional market. An example of fragmentation in Europe and its consequences is the equity market. In Europe, there are 35 different exchanges on which an issuer could choose to list its shares. This figure contrasts with the three platforms available in the USA. A greater concentration of investors means greater potential liquidity. Therefore, it is not surprising that in recent years we have witnessed a bigger number of European companies seeking liquidity in the USA rather than in Europe, compared to American companies doing the same in Europe.
Spain will hold the presidency of the Council of the European Union in the second half of 2023, at a key moment to complete a CMU that is more necessary than ever to support economic recovery, fostering long-term growth and financing the transition to a more sustainable and digital economy. The European Union has a historic opportunity to advance in the integration of its member markets, promoting the establishment of an attractive capital market so that companies can diversify their sources of financing.
Some of the measures proposed by the European Commission to achieve these objectives include establishing single points of access to the market, as well as common repositories of information, which are accessible to investors and issuers. Harmonizing insolvency rules and greater regulatory convergence are also an essential part of the agenda to achieve a CMU that facilitates access to capital and increases the attractiveness of the European capital market, as well as its competitiveness vis-à-vis other global markets.