Joachim Nagel (left) is President of the Deutsche Bundesbank and a member of the Council of the European Central Bank. François Villeroy de Galhau is Governor of the National Bank of France and a member of the Governing Council of the European Central Bank.
(Photo: Reuters, dpa)
Europe is in the midst of a crisis – from Russia’s war against Ukraine to energy shortages and inflation. We are writing this joint contribution in the conviction that our unity may be more difficult as a result, but is all the more important.
And what is true of Europe as a whole is particularly true of Franco-German friendship. We must not allow ourselves to be divided.
On the Governing Council, we are working with Christine Lagarde to bring down inflation. Today we want to go a little deeper into the financial architecture in Europe.
Despite the urgency of the crisis, not only firefighters are needed, but also architects. Because it is about the question of how the energy transition can be financed and at the same time how the success of the euro can be secured.
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Eighty percent of our fellow citizens feel connected to the euro. This historically high level of confidence in the midst of the crisis is encouraging, but it also reminds us of our duty.
The digital and ecological transformation of our economies and the aging of our societies are structural challenges that will be with us for a long time to come. They require massive investments that have to be financed primarily by private capital.
In order to accelerate the energy transition, we need financial resources of a green capital markets union
For this reason, the European Union launched the initiative to promote the Capital Markets Union back in 2015. Their aim is to mobilize private capital and create incentives for cross-border investments by removing regulatory hurdles.
In 2020, the European Commission adopted a new action plan. Its implementation is intended to help Europe develop into a genuine single financial market.
Further progress in this area would benefit the citizens of Europe. We should therefore look at the project less from a technical point of view and the question of “how” and more as a matter of great importance for the entire economy.
We want to focus on the “why” here and call for a stronger will to community. Capital market integration can contribute to financial stability by promoting cross-border diversification of financing sources and by enhancing private risk-sharing through the expansion of equity financing.
Events such as Brexit, the corona pandemic and, most recently, Russia’s war against Ukraine may have delayed efforts in this area and pushed the topic somewhat into the background.
But we must accelerate the energy transition more than ever. For this we need financial resources, which are provided by a green capital markets union.
Start-ups and small and medium-sized companies would benefit
A capital markets union can also be advantageous in competition with other regions of the world as part of a common European strategy. Because it is a question of Europe’s strategic autonomy.
Considering the need to boost growth in the EU while creating the green and digital transformation, we need to become more attractive to domestic and foreign investors. In an international comparison, the financing of companies through equity and debt securities is still underdeveloped.
In order for the European capital markets to become more attractive, harmonised, reliable and less complicated legal bases are crucial. Accordingly, we support the establishment of a central European access portal (ESAP) as an information platform for international investors.
Start-up companies in Europe still face financing problems due to a lack of venture capital. A capital markets union with a harmonised, broader and deeper financial system would give them the opportunity to significantly improve their financial situation. A capital markets union can make our economy more innovative and at the same time provide attractive investment opportunities.
As far as access to the capital markets is concerned, small and medium-sized enterprises (SMEs) in particular have some catching up to do. The securitization of SME loans could provide a bridge between bank financing and the capital market.
Completing the Capital Markets Union is certainly a long-distance race. In order to lead them to success, it is important to choose the right route now. A competitive and integrated financial system will help Europe meet the challenges we face.
The authors: Joachim Nagel is President of the Deutsche Bundesbank and member of the Governing Council of the European Central Bank. Francois Villeroy de Galhau is governor of the French National Bank and member of the Governing Council of the European Central Bank.
More: “Don’t have a real capital markets union” – Lagarde explains the weakness of the euro