The deepening of European capital markets is urgently needed as the need for large-scale financing increases. Europe needs to make large-scale investments in areas such as the green transition, the digital transition and defense to remain economically competitive. However, neither public budgets nor bank balance sheets can support this large-scale investment effort, highlighting the vital importance of developing European capital markets.
The current underdevelopment of capital markets in Europe stems from a small investor base and structural fragmentation. A new approach is essential to close the gap with other major economies. Against this background, the Commission puts forward four main recommendations:
First, it is recommended to develop a European long-term savings product to increase inflows into European capital markets. This measure aims to mobilize the abundant savings of European households to finance the economy, while offering attractive tax benefits to encourage long-term investments. Second, the Commission proposes to reopen the securitization market in order to strengthen the lending capacity of European banks and deepen capital markets. This goal implies a rapid revision of the regulatory and prudential framework to unleash the growth potential of the European securitization market. It also mandates an ambitious review of the added value of European securitization platforms, which could be a powerful tool to deepen EU capital markets. Third, integrated supervision of capital market activity is recommended to build a true European single market and guarantee financial stability. This implies reforming the governance of the European Securities and Markets Authority (ESMA) and expanding its supervisory powers, mandatory for most cross-border systemic market infrastructures and optional for asset managers and their funds. Finally, the Commission proposes to consider measures to reduce fragmentation in the settlement of financial transactions in Europe, including efforts to harmonize securities law across the EU and reforms to the European Technology Platform for Payments (T2S) to improve efficiency and integration.
