Germany, France and four other European Union (EU) economic heavyweights have reached the final stage of an agreement in integration talks to unite a capital market scattered across 27 member states. On the 28th, local time, Bloomberg and the AP reported that the finance ministers of Germany, France, Italy, Spain, Poland and the Netherlands met that day at a state guesthouse near Berlin and hammered out a compromise on the most intractable issue in the Capital Markets Union (CMU) negotiations. These six core EU economies are known as the "E6."
The CMU is a plan to merge the EU's country-by-country capital markets into a U.S.-style single market. A capital market is where corporations raise funds directly from investors by issuing stocks and bonds. Recently, depending on the nature of the activity, coin transaction is also included in the capital market. Europe's capital markets have long been criticized as excessively shallow and fragmented compared with those in the United States, and overly reliant on bank lending. Because each member state has its own regulations, corporations face higher expense and unnecessary confusion, critics say. After the financial crisis, the EU decided it needed to build a large, single investment market to open better investment options for citizens and to supply more funding to companies within the bloc, so it could stand up to the United States and China. It has since pushed a 27-country capital markets integration plan for more than a decade, but has made little progress.
In particular, major countries such as Germany, Italy and the Netherlands were strongly opposed. They worried that their domestic supervisory authority would be transferred to the existing EU financial watchdog, the European Securities and Markets Authority (ESMA). Based in Paris, ESMA is the EU's securities and markets regulator, performing at the EU level the role that the Securities and Exchange Commission (SEC) plays in the United States. If the 27 national capital markets are integrated, the agency would directly supervise large stock exchanges, clearinghouses, asset managers and cryptocurrency exchanges across EU borders.
France and Spain pushed to immediately grant strong powers to ESMA. Germany, Luxembourg and Ireland, by contrast, applied the brakes to ESMA-led centralized supervision. Italy and the Netherlands demanded a transition grace period of up to eight years. But circumstances changed when, the day before, Germany and the six countries agreed at the end of a finance ministers' meeting to expand ESMA's powers as quickly as possible without specifying a concrete deadline. German Finance Minister Lars Klingbeil said on the 28th, "The Capital Markets Union is more important than clinging to Germany's national interest," adding, "The German government is ready to move forward on centralized supervision." The six countries plan to issue a joint statement on the 29th.
Experts said Germany's change in stance was underpinned by concerns over security instability. Germany took the lead in late January this year to form the E6 group for the first time. The idea was for the six major economies in the bloc to push ahead first on issues that had repeatedly run aground under the EU rule requiring unanimity among all member states. The six E6 countries account for about 95% of the EU capital market. They expected that if the bloc's major economies spoke with one voice, delayed issues would gain momentum. At the time, U.S. President Donald Trump was insisting on taking over Greenland, an autonomous territory of EU member Denmark.
Still, even if the six economic powers issue a joint statement, it remains uncertain whether all member states will agree to the Capital Markets Union as initially hoped. For the EU to reach a final agreement, approval is needed from at least 15 countries representing more than 65% of the total population. First, hardline skeptics such as Ireland and Luxembourg must be persuaded. After all member states set a common position, negotiations with the European Parliament over the European Commission's proposal would remain. Reuters quoted experts as saying, "Even just to get this far could take another six months to a year from now."