The capital markets union (CMU) is one of the cornerstones of the euro area’s financial architecture. But progress in developing it has been slow. Since the agreement on establishing CMU in 2015, many subprojects have been launched, and some completed, but European capital markets are still far from being fully integrated. Despite the fact that the coronavirus (COVID-19) crisis has made CMU more important than ever, progress has unfortunately slowed, notwithstanding the substantial headway made on the fiscal side with the agreement on the European recovery package (Next Generation EU).

Financing the post-crisis recovery is one of the most pressing challenges Europe is facing today. Capital markets will be crucial. The new bond issuance by the European Commission, in the context of Next Generation EU, relies on well-functioning capital markets.[1] But public funding cannot do the heavy lifting alone; it will have to be complemented by substantial private financing. With the banking sector under pressure due to the pandemic, private bond and equity markets can play an important role in complementing bank financing. In order to recover from the pandemic and strengthen the euro area’s growth potential, a new push is needed towards the long-term ambition of creating a genuine single European capital market that is deeply integrated and highly developed.

This will not only mobilise the resources needed to reboot the euro area economy after the global contraction. It will also help meet the additional challenges posed by external developments, such as Brexit and global trade tensions.[2] In addition, it will provide opportunities for accelerating the transition to a low-carbon economy – thereby supporting the European Union’s ambition to be a leader in green finance – and for funding the transition towards the digital economy.

A single capital market will also strengthen our common currency’s role on the global stage. And last but not least, a deeper and more integrated financial system is also needed from a monetary policy perspective, as integrated capital markets improve the transmission of our single monetary policy to all parts of the euro area. In turn, this will help limit the risk of growing asymmetries among member countries as our economies recover from the COVID-19 shock at different speeds.

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