A Capital Market Union for Europe

Ashok Bhatia, Srobona Mitra, Anke Weber, Shekhar Aiyar, Luiza Antoun de Almeida, Cristina Cuervo, Andre Santos and Tryggvi Gudmundsson

No 2019/007, IMF Staff Discussion Notes from International Monetary Fund

Abstract: This note weighs the merits of a capital market union (CMU) for Europe, identifies major obstacles in its path, and recommends a set of carefully targeted policy actions. European capital markets are relatively small, resulting in strong bank-dependence, and are split sharply along national lines. Results include an uneven playing field in terms of corporate funding costs, the rationing out of collateral-constrained firms, and limited shock absorption. The benefits of integration center on expanding financial choice, ultimately to support capital formation and resilience. Capital market development and integration would support a healthy diversity in European finance. Proceeding methodically, the note identifies three key barriers to greater capital market integration in Europe: transparency, regulatory quality, and insolvency practices. Based on these findings, the note urges three policy priorities, focused on the three barriers. There is no roadblock—such steps should prove feasible without a new grand bargain.

Keywords: SDN; EU counterparty; EU capital market practitioner; euro area; EU capital market rule; EU treaty; EU venture capital funds; Capital market union; financial integration; bilateral portfolio flows; monetary union; investment firm; funding cost; growth performance; private equity; equity valuation; capital market market fragmentation; nonfinancial firm; company information; Capital markets; Securities; Stocks; Mutual funds; Solvency; Europe; Global (search for similar items in EconPapers)
Pages: 30
Date: 2019-09-10
New Economics Papers: this item is included in nep-mac
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