A Capital Market Union for Europe

Mr.Ashok Vir Bhatia · Ms.Srobona Mitra · Anke Weber · Mr.Shekhar Aiyar · Luiza Antoun de Almeida · Cristina Cuervo · Mr.Andre O Santos · Tryggvi Gudmundsson

sept 2019 · International Monetary Fund

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This note weighs the merits of a capital market union (CMU) for Europe, identifies major obstacles in its path, and recommends a set of carefully targeted policy actions. European capital markets are relatively small, resulting in strong bank-dependence, and are split sharply along national lines. Results include an uneven playing field in terms of corporate funding costs, the rationing out of collateral-constrained firms, and limited shock absorption. The benefits of integration center on expanding financial choice, ultimately to support capital formation and resilience. Capital market development and integration would support a healthy diversity in European finance. Proceeding methodically, the note identifies three key barriers to greater capital market integration in Europe: transparency, regulatory quality, and insolvency practices. Based on these findings, the note urges three policy priorities, focused on the three barriers. There is no roadblock—such steps should prove feasible without a new grand bargain.