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Christine Lagarde
The President of the European Central Bank
Pascal Donohoe
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Ursula von der Leyen

Channelling Europe's savings into growth

9 March 2023

By Paschal Donohoe (President of the Eurogroup), Werner Hoyer (President of the European Investment Bank), Christine Lagarde (President of the European Central Bank) Charles Michel (President of the European Council) and Ursula von der Leyen (President of the European Commission)

Europe must speed up its green and digital transition. For that, we need to complete the Capital Markets Union to provide effective financing. This is the plea made by the five Presidents of the ECB, EIB, European Council, European Commission and Eurogroup in a joint post.

The European Union is determined to fast-forward its green and digital transition. What we decide today will affect the generations to come. It is our collective responsibility to get it right. Creating net-zero industries, boosting technological competitiveness, and diversifying supply chains will be paramount for Europe’s continued prosperity and strategic sovereignty in the coming decades.

The financing needs are huge, and the lion’s share will need to come from private capital. The role of public investment is to give policy direction and to incentivise massive crowding-in of private capital, including through, but not limited to, the involvement of the European Investment Bank Group and national promotional banks.

We have been too slow on the Capital Markets Union

The Single Market has underpinned Europe’s prosperity since its creation 30 years ago by eliminating obstacles to trade within the EU and attracting foreign investment. And the Economic and Monetary Union has been a further driver of market integration. But we have been too slow for too long on one essential building block: the Capital Markets Union.

Right now, banks in Europe provide the bulk of investment funding. They alone, however, cannot help the EU win the global investment race, especially in comparison with the United States. Bank loans account for 75% of corporate borrowing in the EU and bond markets for 25% – while the inverse is true in the United States.

Our start-ups and scale-ups are looking for capital. Businesses, especially SMEs, are struggling to find the patient and risk-bearing funding they need to invest in the green and digital transition. For example, the EU’s stock market capitalisation is less than half that of the United States, in percentage of GDP, and lower than that of Japan, China and the United Kingdom. Yet, Europeans save much more than Americans.

It is our responsibility to make sure that European companies have the financing opportunities they seek, here, in the EU. We need a Capital Markets Union that channels Europe’s vast savings into tomorrow’s engines of growth. We must overcome the current patchwork of national frameworks, and in some cases underdeveloped capital markets, to unlock their full potential. This will strengthen the EU as an investment destination and make the euro an even more attractive currency.

The EU has already taken some decisive steps in creating a Single Market for capital. Still, we need to step up our efforts and our ambitions to remove remaining barriers to cross-border finance and allow for deeper harmonisation. This includes more aligned insolvency laws, more easily accessible financial information, simplified access to capital markets, particularly for smaller companies, robust market infrastructures, and more-integrated capital markets supervision.

Deepening the Capital Markets Union requires a collective effort, involving policymakers and market participants across the EU. It needs strong political will and ownership at all levels of government. It needs the European Parliament and the Member States in the Council to urgently finalise negotiations on key legislative texts. It requires courage and openness to change. We are determined to see progress going through.

Time is of the essence. We have made notable progress toward Europe’s financial integration in the past two decades, but it is time to show greater ambition. A genuine Capital Markets Union is within reach. The coming decades will see the greatest industrial transformation of our times. Our long-term competitiveness will depend on it. Let’s make sure we have the capital to make it happen.

This ECB Blog post appeared as an opinion piece in various newspapers and on websites across Europe.

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