NB : cette note, produite en support de la conférence « Future Europe » du 20 juin 2018, est en cours de traduction en français.
In addition to operational and legal issues, Brexit will trigger a major reshaping of the financing of the EU27 economy. This is particularly important in the light of EU policymakers’ goal to reduce the reliance of the European economy on the bank channel (currently 75%) and to increase the availability of capital markets financing (currently 25%), thus diversifying financing and reducing the impact of problems in the banking sector and the importance of the ‘too-big-to-fail’ issue. As such, the UK’s departure from the EU, together with London as Europe’s major financial center, reinforces the need for:
- A more robust EU Capital Markets Union (CMU), not only as a complement to the traditional banking channel but also as a key path towards ensuring more harmonized EU markets. Since September 2015, positive steps have been taken to modernize EU capital. However, much remains to be done on several fronts. Now is the time to make big strides to address both pan-European and local dimensions of the CMU. Digital and sustainable finance should be at the heart of this discussion.
- A fully-fledged Banking Union, to allow banks to offer their services across borders within the Monetary Union with as few unnecessary impediments as possible. The current framework was established in a remarkably short period of time and effectively contributed to reducing fragmentation in Eurozone banking markets. But fragmentation continues to be greater than desired. There are several possible pathways towards addressing the existing barriers faced by banks operating within the Banking Union. A high priority is establishing the Banking Union as a single jurisdiction when applying certain prudential requirements. The path forward is politically challenging but economically worthwhile: a banking system that is self-insured, does not rely on sovereign implied guarantees and does not fall back on taxpayers.
Undoubtedly, the degree to which (wealthier) EU members are willing to give away more sovereignty and share multiple financial risks together will determine how much progress can be made towards a more robust EU Capital Market Union and a fully-fledged Banking Union.
While we are confident that the EU27’s leading financial services providers will be able to ensure the continued availability of financial services to EU customers after Brexit, the objective here is to reflect on which pathways the EU27 should prioritize to become an independent financial center with a strongly enhanced attractiveness. The EU27’s choices in this regard will have a decisive impact on the future development of the EU’s position and influence as a global financial center.