ECB Officials: Covid-19 A Wake-Up Call to Complete Cap Markets Union

2 September 2020

By David Barwick – FRANKFURT (EconoStream) – Several top European Central Bank officials on Wednesday called for a renewed drive to complete the capital markets union (CMU) to support the post-pandemic recovery and boost potential growth.

In a blog post on the website of the ECB, Vice President Luis de Guindos and fellow Executive Board members Fabio Panetta and Isabel Schnabel said that the economic crisis in the wake of Covid-19 is a ‘wake-up call’ reminding of the importance of completing CMU.

‘In order to recover from the pandemic and strengthen the euro area’s growth potential, a new push is needed towards the long-term ambition of creating a genuine single European capital market that is deeply integrated and highly developed’, they wrote.

Among the benefits of CMU would be giving companies in the region more options for funding and in particular allow them to avoid relying on the banking sector under the adverse circumstances of a shock like the pandemic, they said. Monetary policy transmission would be improved, they noted.

Also, CMU would promote risk-sharing both geographically and in terms of those holding the risk, ‘generating positive effects from a macroeconomic stabilisation perspective and making economies more resilient to local shocks’, they said. The possibility of increased economic divergence as euro area countries recover from the current crisis puts a premium on this aspect, they observed.

More integrated capital markets would also be favourable for growth and innovation as well as promote Europe’s transition to a low-carbon economy, the trio asserted, citing relevant research.

As a further benefit, de Guindos, Schnabel and Panetta advanced the view that CMU would make the euro more internationally attractive. ‘A stronger international role for the euro would benefit our monetary policy, including through greater policy autonomy and improved monetary policy transmission, with positive spillbacks and lower external financing costs’, they wrote.

Finally, progress toward CMU would complement the completion of the banking union, they argued, calling the two projects ‘mutually reinforcing’.

The trio urged that the European Commission’s forthcoming CMU Action Plan be ambitious. To foster further integration, they proposed a series of policy measures embracing legal frameworks, supervisory aspects, fiscal policy, financial markets and securitization, implementing which, they said, ‘could trigger a virtuous cycle of better economic outcomes and further reforms, strengthening the European project.’