Opinion piece: Working towards a single capital market

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3 July 2024

Now that the European top jobs have been filled and it is clear who will be at the helm of the European institutions for the next few years, the focus is back where it should be: on the substance of the agenda. The European Union is faced with the enormous challenge of strengthening its economic resilience. Developing a European capital market must be an absolute priority. As von der Leyen said at the European Parliament’s closing session in late April: ‘If we are to fund the new industrial revolution of our times, we must mobilise Europe’s private capital.’

Launched in the 1990s by then Commission President Jacques Delors, the single market is one of Europe’s crowning economic achievements. Back then, it represented a major step forward in European integration and a strategic response to the need for a more efficient European economy. With its four freedoms – goods, capital, services and people – the single market has given businesses unparalleled opportunities to grow and compete on a much larger scale. The result has been greater stability and a more competitive Europe on the world stage. By providing access to a market 40 times larger than Belgium’s traditional domestic market, the single market has undoubtedly been a lifeline for Belgian businesses. Three sectors were intentionally excluded from the single market: financial services, electronic communications and energy. That could now change.

Today’s world differs fundamentally from the one in which the single market was created 30 years ago. European businesses now compete in a global market that is much larger and more complex than ever before. Geopolitics is more volatile, with tensions between major powers such as the US, China and Russia having a profound impact on trade and economic cooperation. In many strategic sectors, from defence and energy to pharmaceuticals and semiconductors, sovereignty is the operative word. As Europeans, we can no longer depend on others for our strategic sectors, nor for funding the various transitions: digital, energy, demography and security. Strengthening our strategic autonomy will be one of the absolute guiding principles in the coming years, and will require huge investment.

Putting our economy on the path to carbon neutrality may require even greater investment. While the focus of the Green Deal over the past five years has been on developing the rules, the next few years must concentrate on implementing them. This, too, will require massive investment. Across Europe, annual investment is estimated to be close to €700 billion by 2030. Governments and banks, which already account for 80% of funding, cannot possibly bear these costs alone. Private capital needs to be mobilised within Europe for this purpose. And if we get it right, we will also attract non-European investors.

To achieve this, Europe must finally work towards a single European capital market, a market that is small and fragmented compared to the US and therefore less accessible to, for example, start-ups in AI, cleantech or fast-growing SMEs. It’s no coincidence that former Italian Prime Minister Enrico Letta recently put the expansion of a single European capital market on the table in his report ‘Much more than a market’. Letta speaks of a ‘savings and investment union’, which has the advantage of clarity. A new course has to be set out in the coming years. Facilitating access to the necessary investment is essential for our European businesses to innovate and scale up, which is necessary for a dynamic and resilient European economy. Only with much-needed funding will they be able to innovate and compete on a global scale, creating new jobs here in our backyard.

A well-functioning European capital market must therefore be one of the absolute priorities of the new European Commission. A key building block of this European capital market is facilitating securitisation, by which banks and corporates bundle certain loans or income streams and then offer them on the securities market. This will unlock private capital and create new, much-needed means of funding the huge transition challenges facing our European businesses and industries. Meanwhile, a prudent and transparent roll-out will help to make the European investment proposition more attractive to private and institutional investors. Other regions of the world are proof that such a market has potential without having to lead to higher risks.

The financial sector is poised to help build a stronger digital and sustainable economy. Time is of the essence. Let’s seize this opportunity together.

Michael Anseeuw, CEO BNP Paribas Fortis and President Febelfin

Febelfin also wrote a position paper.