Business

Europe ‘lagging’ rivals due to slow capital market reforms, says McGuinness

Commissioner warns that progress towards single capital market at EU level had been ‘too slow and too modest’

Weakness in capital markets translates into lower rates of economic growth, which is bad for the EU and for our place in the world, Mairéad McGuinness said. Photograph: Ronald Wittek/EPA

Jack Power
Fri Apr 5 2024 - 17:10

The European Union is “lagging behind” economic rivals due to its failure to push through financial reforms within the bloc, the EU commissioner for financial services Mairead McGuinness has said.

In a letter to Mario Draghi, the former European Central Bank president who is finalising a report on the EU’s competitiveness, Ms McGuinness said the bloc was losing ground to other large economies. The letter, seen by The Irish Times, said long debated reform of capital markets in the EU was not happening quickly enough.

The correspondence said current capital markets in the EU were too small and too “fragmented” to deliver enough financing to boost investment. A proposal for a single market for capital in the EU has for years failed to get off the ground, in part due to some countries’ concerns they would lose out as a result of the reforms.

“If EU capital markets remain as they are today – too small, too fragmented and too inefficient – they will not deliver the private financing that is needed,” Ms McGuinness told Mr Draghi. Progress towards a single capital market at European level had been “too slow and too modest”, she said.

READ MORE

“This is one of the main reasons why the EU is lagging behind many advanced economies in terms of size and depth of capital markets. This weakness translates into lower rates of economic growth, which is bad for the EU and for our place in the world,” she said.

The Fine Gael politician said there had been “unambiguous support” to change the current system, but this needed to be followed by concrete actions.

“I believe your upcoming report on EU competitiveness has a crucial role to play,” she told Mr Draghi. “The EU is facing the most challenging geopolitical transformation since the second World War,” she said. It needed to change to remain “globally relevant” when it came to areas such as artificial intelligence, technology, security and defence, she said.

The EU commissioner said there was also an “urgent need” to make it easier for people to invest their money on the market, rather than having it sit in banks. “When they do invest in capital markets, they are often offered complicated and costly products that lead to disappointing returns. This needs to change,” she said.

Progress on capital market reforms could unlock more private finance, which could make up part of the “massive” amounts needed to be invested in renewable energy over the coming years, she said.

While the idea of a single supervisor overseeing capital markets across different EU countries was “controversial”, at a minimum the role of the European Securities and Markets Authority (Esma) should be beefed up, Ms McGuinness said.

The commissioner said changes were also needed to address different laws between countries when it came to tax, insolvency and accounting practices. “We need to remove all remaining barriers to cross-border activities. Within the EU regulatory framework there are still divergent national rules which fragment the Single Market. We need the same set of rules applying in all our Member States,” she wrote.

Jack Power

Jack Power

Jack Power is acting Europe Correspondent of The Irish Times

LATEST STORIES