ECB’s Panetta Calls Eurobonds a Necessary Condition for Capital Markets Union
30 August 2023
By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Fabio Panetta on Wednesday called for the establishment of a permanent safe asset at the level of Europe as an essential part of creating a fully-fledged capital markets union.
In a blog post on the website of the ECB, Panetta said that in addition to the absence of a complete banking union, the other of two ‘critical blind spots’ in developing a capital markets union in Europe was ‘the lack of a permanent European safe asset.’
The existence of such an asset was a hallmark of mature capital markets and was needed to price risky financial products, to provide a common form of collateral, to diversify financial institutions’ exposure and to make the euro more international, he said.
‘Establishing such a permanent European safe asset would be a game changer, but it hinges on Europe having a standing fiscal capacity with a borrowing function’, he said. ‘Without that, building a deep and competitive CMU will prove much more difficult.’
Although progress had been made towards a fully functioning capital markets union, ‘the results are not yet satisfactory’, he criticized.
The European capital market was fragmented along national lines, with financial integration ‘much lower’ than before the global financial crisis, he said.
Whilst Europe’s role in the green bond sector was notable, this was just a niche, and Europe’s advantage even here could erode in the absence of a capital markets union, he said.
‘For example, venture capital activity, shown to be pivotal for funding green innovation and decarbonization, remains limited in the euro area’, he said. ‘And there are signs that Europe’s green bond market is becoming increasingly fragmented, pointing to a lack of common standards and obstacles to cross-border investment.’