CMU key to solving the ‘real problem of Europe’
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CMU key to solving the ‘real problem of Europe’

Bankers see European capital markets union as more needed than ever to help drive growth in the region, but are fretting about slow progress and a scope some feel is too narrow – however, an EU official attending the Institute of International Finance meetings in Washington defended the bloc’s approach.

Erste Bank chairman and CEO Andreas Treichl

Erste Bank chairman and CEO Andreas Treichl spends most of his time working in parts of Europe more blighted than most by undeveloped capital markets. And so it was with some passion that he launched into what amounted to a call to action on the EU’s long-discussed capital markets union (CMU) project at October’s IIF meetings in Washington DC.

He said that while it might look as though US banks were doing better than European banks, he did not think this was because US bankers were better bankers. Even Europe’s best banks lagged far behind US rivals in market value and the growth of that value. 

The simple fact was that banks were much less important for the US economy than they were for the European economy, and capital markets in Europe were unable to provide the investment opportunities available in the US. 

“US banks are taking care of 25% of the financing of the economy, and I operate in a region where 90% is financed by banks,” he said. “This is the real problem of Europe.”


Capital markets union is supposed to help rebalance that. There has been some progress even without it, as highlighted by Huw van Steenis, global head of strategy at Schroders, in a separate session at the IIF meetings. He noted that about half-a-trillion dollars of corporate funding had transferred from European banks to the bond markets over the last 10 years.

Treichl appeared to have little confidence that fully fledged capital markets union would become a reality any time soon. 

“Overall I would rate Brussels as good at bureaucracy but very low grade,” he said. “We don’t have great people in Europe anymore, and that is a huge problem, particularly if they try to get things done.” 

There were two countries in Europe with a traditional capital markets culture, he said: the UK – about to leave the Union; and Switzerland – never even in it.

The middle class in the Czech Republic or Slovakia had little or no opportunity to invest in capital markets and it was much the same in Austria. Bank deposits and purchases of government bonds went up, yields went down. Austria, he noted, had 100-year debt yielding just 2%. A lack of access to capital markets meant that it was difficult for the middle class to create wealth, while at the same time regulation had made bank lending more difficult. It all put Europe at a severe disadvantage to the US and Asia. 

We have a prospectus directive that is a one-size-fits-all, and there is a big gap in CMU around private placements - Huw van Steenis, Schroders

Van Steenis, in a panel discussion on the future of the European financial sector, was as clear about the desirability of capital markets union as Treichl had been. He has the added advantage of sharing a panel with a relevant member of the European Commission, Martin Merlin, a director in the directorate-general for financial stability, financial services and capital markets union.

There are bankers who consider that progress towards capital markets union has lost momentum. But Merlin insisted that there was plenty of work going on. He agreed that the financial crisis had shown the European economy to be too dependent on bank finance; the Commission had spent a great deal of time looking at ways of helping various market segments operate more efficiently, such as venture capital funds, covered bonds and securitization. 

But the bigger picture was about integrating capital markets in Europe. And that project was very important, not least as a way to be able to ensure that losses could be efficiently distributed through the region. 

A new element of the work was looking at the institutional dimension, he added. The Commission wanted to strengthen the European Securities Markets Authority, adding areas like the issuance of certain prospectuses and investment funds to its remit, alongside existing responsibilities for trade repositories and ratings agencies. He hoped that this would lead to the effective creation of a single supervisor for capital markets in the EU, which ought in turn to help facilitate market integration through the application of a single rulebook.

'Investor prism'

Van Steenis questioned if enough work was being done to look through the “investor prism” as well as at institutional and product structure. He argued that there were many small and mid-cap firms who might want to issue securities that ought not to be going into Ucits (Undertakings for Collective Investment in Transferable Securities) funds or to retail investors, for instance, and for whom a more specialist, qualified market might be more appropriate. 

The US private placement market provided exactly this kind of avenue, but he worried that there appeared to be no consideration of something similar in European CMU discussions

“We have a prospectus directive that is a one-size-fits-all, and there is a big gap in CMU around private placements,” he said.

Merlin disagreed. The Commission had indeed looked into private placements but had concluded that there was already a fairly developed market in some countries and that it was not clear that any form of EU regulatory intervention would help.

In case anyone was in any doubt, Merlin reminded the panel that CMU was very complex, encompassing structural reform in 27 countries. That was difficult enough in just one. 

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