ECB’s Lagarde: Need New Approach to Capital Markets Union
17 November 2023
By Isabel Teles – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde on Friday said that for the Capital Markets Union (CMU) to help Europe face its challenges, a completely different approach was necessary.
In a speech at the European Banking Congress, Lagarde said that ‘Europe is facing a series of common challenges, with the “three Ds” of deglobalisation, demographics and decarbonisation looming larger’ and that the CMU could help to deal with these issues. However, she warned, ‘[w]e will not succeed in these transitions if we don’t get CMU back on track.’
‘Addressing all these challenges at the same time will require a generational effort – and massive investment is needed in a short space of time’, she said, observing that ‘we cannot expect [banks] to take on so much risk on their balance sheets’ and, therefore, should discuss the role of the CMU.
‘Europe’s capital market remains fragmented’, she said. ‘Financial integration is lower than before the financial crisis.’
Some of the reasons that could explain the failure to achieve a CMU were the lack of a ‘unifying project around which CMU can be anchored’ and the bottom-up approach to integration, she said.
‘The solution, in my view, is to make a “Kantian shift” in our approach to CMU’, meaning moving from a bottom-up approach to a top-down one, she said.
‘A genuine CMU would mean building a sufficiently large securitisation market, allowing banks to transfer some risk to investors, release capital and unlock additional lending’, she said. ‘This could be even more powerful in our bank-based financial system.’
It was also necessary to have a ‘single rulebook enforced by a unified supervisor’, which would contribute to mitigating the fragmentation of European Union capital markets and ‘empower private entities to expand their ambitions in fostering high-growth private investments’, she said.