If there is one thing that 2016 taught us it is to expect the unexpected. That said, what we can expect in 2017 is that political uncertainty and change will continue. Uncertainty is now the new normal.
There is a risk that we focus too much on difficulties and dangers of uncertainty, and miss the opportunities that lie before us. The European Commission’s Capital Markets Union (CMU) initiative is a prime example of a major opportunity, which must not be missed.
There are still many individual, segregated, national capital markets across the EU which are not working as well as they could. We see too many savers that do not find appropriate investment opportunities, and too many borrowers that are unable to borrow the funds that would allow them to invest in the real economy.
A CMU would break down barriers between segregated capital markets and improve the working of markets. It will support economic growth as well as contribute to the systemic stability and to the capacity for risk absorption of the European economy.
Understandably Brexit and the future role of Britain in a CMU is an issue. Brexit creates the risk that barriers will be built, rather than broken down. This would be damaging. But it is vital that we do not freeze developments for two and half years (or longer) waiting for the UK to exit the EU. The need for a CMU is simply too great.
A CMU including the UK would provide bigger benefits than a CMU without the UK. But it may turn out that there is no alternative and that the CMU project will be an EU-27 project, not an EU-28 project. Although this is not optimal, a CMU remains advantageous to all European economies. Bigger markets, rather than smaller markets, are of benefit to all market participants.
From a short-term and practical perspective, I see the potential for the CMU project to bring about major improvements in procedures relating to tax relief on dividend and interest payments. I am very pleased that the European Central Bank and the community of users of the ECB’s securities settlement infrastructure (TARGET2-Securities), including BNY Mellon, are supporting this work.
Among the many other CMU proposals, the prospective for improved safety and predictability in cross-border investment through, for example, work on insolvency procedures and on shareholder rights, as well as the proposals for regulations on prospectuses and on securitization, are interesting. And one very interesting long-term suggestion is the idea of developing a market for pan-European personal pensions.
The conclusion is clear. The importance and potential of the CMU project are such that we need to prioritise it in 2017. Yes, we shall then be faced with the challenge of having to manage the potential divergences in the regulatory framework with the UK post Brexit. But this is a general challenge that will occur in many different areas. Not just with the UK, but with the US and Asian markets too. We shall have to find a solution regardless.