The Politics of Capital Markets Union

The European Capital Markets Union is an ambitious project with a well-established economic rationale. Less well explored is the political side of the CMU agenda.

This paper argues that the main purpose behind the CMU project is a political move. I show that the initial plan was first and foremost to avoid Brexit: a stronger EU-wide capital market seemed like an appealing project to the UK back in early days of the Juncker Commission, and promised to overcome the long years of crisis response. It was thus a political bid to influence the growing anti-EU attitude and to win over the City of London.

Since this strategy was ultimately unsuccessful—at least, it did not suffice to secure a majority voting for a UK-wide ‘remain’ vote—the entirety of the CMU project was thrown into question after the referendum. That is understandable since, after the UK’s vote to leave, the original objective no longer provided the glue that had held the CMU agenda together.

However, I show that, post Brexit, CMU can and should helpfully be redefined and reexplained in an entirely new and frequently overlooked context. If sufficiently reinforced and expanded, the plan may find a new purpose in strengthening the Eurozone architecture. Cross-border integration of national financial markets holds the promise of promoting so-called ‘private risk sharing’ that can serve as an important boost to reinforce the fragile framework of the common currency. This latter point comes amid the ongoing policy debate on the future of the Euro and maybe an opportunity for policymakers in the new incoming Commission.