The Capital Markets Union (CMU) has become a staple on EU finance ministers’ monthly meeting agenda ever since Enrico Letta’s April report set the stage for a revamp of the Union’s decade-old plan, yet talks on certain aspects have already stalled, hindered by a familiar divide among member states.
This is certainly the case for Letta’s proposal to shore up plans for centralised financial firms’ supervision – something that had immediately reignited the 27 EU countries’ proverbial nationalist inclinations back then, with capitals not wanting to lose part of their national clout in favour of the common Paris-based financial securities watchdog – ESMA.
However, reporting to MEPs in Brussels on Monday (14 October), the chiefs of both ESMA and the Union’s insurance supervisor EIOPA – Verena Ross and Petra Hielkema, respectively – did not shy away from taking a much clearer stance on the issue, in what seemed like a direct dig at member states’ lack of commitment and resolution.
Ross argued that if the EU truly wants to channel cross-border money into European companies to help them scale across the Union and compete with global players, regulatory fragmentation needs to become a thing of the past.
“When EU laws and directives are actually applied in practice, you still have huge divergences,” Ross told MEPs, emphasising that these differences lead to „huge inefficiencies” for firms and make cross-border scaling difficult to achieve.
“From that perspective, we believe there are areas that we need to look further – certainly that [is the case] for the proposal to look at more central supervision for cross-border infrastructure players, which are not well supervised purely at the national level,” Ross said.
By financial infrastructure players, she is referring to those firms that operate cross-border in the area of settlement and clearing between the different counterparties of financial trade, as well as payments.
Even for these pan-European firms, however, Ross was very eager to reassure national market stakeholders that ESMA would only take on the oversight of the larger companies.
“Of course, smaller players are best supervised at the national level – and that’s appropriate and should definitely stay that way,” Ross said.
Her overall message was clear: policymakers need to urgently focus on setting up “liquid pan-European markets segments and a sound equity culture to support the scaling up of EU companies.”
“That means,” she said, “developing scale and liquidity in the European market rather than just concentrating on having little pockets of markets within member states – but rather linking them together.”
Hielkema, on her part, was adamant that if EU legislators wanted to turn millions of European savers into investors, they needed to enable cross-border supervision and a pan-European credit protection mechanism.
“As insurers are allowed to operate with a single license throughout the EU, and consumers can also buy across borders, we need to recognise that the level of protection consumers enjoy depends on where they buy the product,” EIOPA’s boss emphasised.
“As insurance guarantee schemes (IGS) are not harmonised across member states and the competence for insurance supervision is national.”
Creating pan-European retail investment products would thereby warrant a common point of reference to ensure consumer protection is truly possible.
“You need a simple product, a place where you can complain and get redress, and need a supervisor to act on that,” she said.
In the case of a cross-border insurer, a European mechanism should be in place whereby, at the EU level, supervisors „can step in and make sure that whoever is not delivering on a promise, is dealt with in a way where they either leave the market or they behave better,” Hielkema added, doubling down on the consumer protection angle.
However, she was confident in the possibility of encouraging more market-led options to boost citizens’ savings and retirement money pot – given that state-led pension schemes will become less and less adequate to cater for Europeans’ needs going forward.
“We will soon go from one pensioner for every three workers to one pensioner for every 1.5 working people,” she pointed out.
As a result, state pensions “will go down from [covering] 47% [of pension needs] to mid 30s% in the next 20-30 years,” she added.
But boosting private-market pension and investment products, she said, means that EU policymakers need to be „mindful” that discussions about insurers and pension funds investing in the economy are ultimately about managing pensioners’ money. „We are talking about the retirement income of individual Europeans,” she stressed.
On this, Hielkema signalled EIOPA will be actively monitoring negotiations on the bloc’s retail investment strategy (RIS) – as will many others, given that trilogues between Parliament and member states’ negotiators, most likely only starting next year, promise to bring up some thorny sticking points.
Another item to be added to EU finance ministers’ agenda’s regular fixtures.
Economic News Roundup
Friday 18
EU policymakers should consider the adverse effects of reducing trade links with China and not overdo it, the chair of the influential Kiel Institute for the World Economy (IfW) said at the research centre’s geoeconomics conference in Berlin on Thursday (17 October). In a worst-case scenario, losing trade links with China could even increase the risks of a war, such as over Taiwan, because “there’s less to lose,” IfW’s President Moritz Schularick said. German Vice Chancellor Robert Habeck, though, defended the EU’s de-risking strategy in his speech before the panel discussion. “The world has changed […] maybe in a deeper, more fundamental way than we tend to believe when we talk [publicly] about economic figures.” Read more.
Trade tensions with the US will likely persist regardless of who wins November’s presidential election, European policymakers warned on Thursday (17 October), amid concern that Washington’s abandonment of the World Trade Organisation-led order could further damage the EU’s faltering economy. “We expect to have serious conflicts in the future regarding our trade and economic relations,” Bernd Lange (S&D), chair of the European Parliament’s trade committee, said. Matthias Jørgensen, head of the US and Canada unit at the European Commission’s trade department (DG Trade), broadly echoed Lange’s remarks. „[The EU-US relationship has] enormous possibilities, but we also have the risk of conflicts. We need to work to avoid these conflicts [and] we need to manage possible existing ones,” Jørgensen said. Read more.
Thursday 17
The European Central Bank cut interest rates again Thursday (17 October), upping the tempo at which it is lowering borrowing costs as inflation in the eurozone cools faster than expected. The Frankfurt-based institution reduced rates by a quarter point, following a cut of the same size at its last meeting in September. Thursday’s move was the first time that the ECB has cut rates back to back since it started its cycle of easing rates in response to declining inflation. Read more.
The gap for carmakers to meet the EU’s 2025 emissions targets is “smaller than it seems”, according to a study by the International Council on Clean Transportation (ICCT) that contradicts carmakers’ claims they face fines of up to €17 billion under current CO2 rules. While carmakers fear “multi-billion-euro fines” from 2025 due to the lower-than-expected sales of electric cars, a new ICCT study released on Tuesday (15 October) argues that the needed market share increase for electric cars is achievable. On average, carmakers will still need to reduce the average emissions of their newly sold cars by 12% compared to 2023 average emissions, the study found. However, the figures vary significantly between carmakers, suggesting that some are better prepared to reach the targets than others. Read more.
Wednesday 16
The European Commission is reviewing the entire „acquis” of EU law to identify all mandated reporting requirements and find which could be slashed to fulfil President Ursula von der Leyen’s pledge of a 25% reduction. Outi Slotboom, director of strategy and economic analysis at the Commission’s Department for Internal Market (DG Grow), signalled on Tuesday (16 October) that preparatory work on cutting reporting rules across the EU body of laws has begun. “My tentative conclusion is that we have a few very big things on the table and […] not another 1,000 huge burdens that would have been hidden,” said Slotboom at a conference organised by influential lobby group BusinessEurope in Berlin. Read more.
The interim evaluation of Horizon Europe calls for increased funding from €93.5 billion to €220 billion and „radical simplification” of the EU’s next research, development and innovation (RD&I) framework programme. The leaked expert group report evaluating Horizon Europe, the 2021-2027 EU flagship RD&I programme, was presented by Commissioner Iliana Ivanova at 2:30 pm on Wednesday (16 October). The report, seen by Euractiv, proposes „transformative actions” for the remaining two years of Horizon Europe and to prepare the 2028-2034 framework programme, FP10. Read more.
Tuesday 15
The European Parliament could block the approval of the next seven-year EU budget if the Commission and member states fail to boost transparency on the disbursement of the bloc’s multibillion pandemic recovery fund, a senior MEP said on Tuesday (15 October). A vice-chair of the Parliament’s committee on budgets, Monika Hohlmeier, said that MEPs were “fed up” with the fact that neither the EU executive nor member states have adequately identified the ultimate beneficiaries of the €648 billion Recovery and Resilience Facility (RRF). The failure to determine the facility’s so-called “final recipients”, she said, could prompt the Parliament to vote against the next Multiannual Financial Framework (MFF), which is set to enter into force in 2028 but for which negotiations will begin next year. Read more.
To speed up the decarbonisation drive of the country’s energy-intensive industries, Germany’s Ministry of Economics and Climate Action has granted funding to 15 companies, prioritising hydrogen-related projects. The Carbon Contracts for Difference (CCfD) provides €2.8 billion to compensate companies for the extra costs when converting to climate-friendly production methods – and also functions as insurance against fluctuations in CO2 pricing. Economics Minister Robert Habeck handed over the grants to the directors and CEOs of various companies in a ceremony in Berlin on Tuesday (15 Oct) morning. He praised the pilot auction in a colourful manner, calling it „a Europe-wide premiere and unique instrument,” and compared it to „a rocket launch, the lighting of a signal fire that shows: 'This is the way to go!'” Read more.
The EU’s use of trade defence measures is needed until the “root causes” of trade-related economic distortions are addressed through a revamp of the WTO system, Denis Redonnet, deputy Director-General at the European Commission’s trade department, said on Monday (14 October). Redonnet said that only an upgrade of the World Trade Organisation (WTO) framework can ultimately dispel global trade frictions. „Currently, the trade defence instruments are among some of the most effective defensive instruments in the face of [distortions], not least because of the absence of global rules or mechanisms to address [their] root causes,” Redonnet said. However, „It is very clear that ultimately it will require the further development and enhancement of the global rules, most notably [by addressing] government subsidies in the WTO context,” he said. Read more.
Monday 14
The European Commission is considering a mega-fund for research and innovation (R&I), but critical stakeholders say the loss of autonomy for individual funding projects is the opposite of what is needed. A leaked internal Commission proposal suggests that the EU executive may try to achieve this by merging existing initiatives into a massive European Competitiveness Fund (ECF) with a 'single rule and with all and strategic EU funding programmes. This would bring significantly different programmes, such as Horizon Europe and InvestEU, under the same roof in the next Multiannual Financial Framework (MFF), the EU budget for 2028-2034. But for Maria Leptin, the president of the European Research Council (ERC), a key R&I programme, this may be a bad idea. Read more.
Sunday 13
Chancellor Olaf Scholz’s Social Democrats, whose popularity is currently at an all-time low ahead of the 2025 general election, propose introducing a 'Made in Germany’ bonus to encourage foreign companies to produce in Germany. This is part of a core programmatic strategy for the upcoming national elections that Scholz and his Social Democratic Party (SPD) were to agree on at a retreat on Sunday (13 October). But SPD leader Lars Klingbeil emphasised that Scholz’s party still believes in a comeback victory. „Our goal is for the SPD to emerge as the strongest force in the Bundestag elections in twelve months and for us to continue to hold the chancellery,” Klingbeil told journalists in Berlin on Sunday. “We know what a stretch this will be,” he added. Read more.
[Edited by Martina Monti]
