There is little in the capital markets union proposals that will offer immediate economic benefit to the EU, but that does not make the project any less worthwhile.

The capital markets union, presented in a Green Paper (consultation) last month, is a centre-piece policy of President Jean-Claude Juncker’s European Commission. But perhaps “policy” is too strong a word. At present, it is more a set of aspirations. Although intended to apply across the EU, the priority is clearly to reverse the fragmentation of funding conditions in the eurozone. Households and small and medium enterprises (SMEs) in the periphery are facing punitive interest rates for credit compared with their counterparts in the core economies.

So what will capital markets union do to change that? European Commission officials acknowledge that the short-term answer is not much. Massive unorthodox policy interventions by the European Central Bank and a deal that restores confidence on Greece’s place in the euro will have rather more immediate benefits.

This does not mean, however, that the project is a waste of time. Quite the reverse – it is overdue in many ways. In fact, there are echoes of the European Commission’s Financial Services Action Plan from all the way back in 1999. Like those proposals, the European Commission is now calling for greater convergence of insolvency and securities laws to assist debt and equity investors to cross borders in Europe. Two rounds of MiFID have brought some convergence of market practices and investor protection in the meantime, but shareholder and creditor rights vary sharply across the EU. This prompts investors to head for the familiarity of home markets in tough times.

Another welcome proposal is a review of the Prospectus Directive. Equity capital markets advisers have long warned that its lack of proportionality for SMEs has all but killed the market for small-cap listings in Europe, by contrast with the US “on-ramp” approach of scaled requirements.

That criticism dates back to the start of the Prospectus Directive in 2003, however. The average age of the ideas now presented underscores the key weakness of capital markets union – the long-standing difficulty of reaching political agreement on much of it. To add to the usual opposition from defenders of national specificities, there is a growing suspicion among proponents of financial regulatory reform that the whole project – and especially suggestions of easing rules on securitisations – is a Trojan horse to roll back the post-crisis rulebook (see this month’s Reg Rage column). The European Commission plans to bring out a White Paper turning consultation into action in September this year. It will have its work cut out to ensure Mr Juncker’s growth agenda trumps the doubters.

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