The Capital Markets Union: new limits on a democratic Europe
While the Capital Markets Union (CMU) plan has gathered attention over the past year, it should be remembered that the plan for a European capital market dates back to 1966. Although much has changed since then, this historical perspective illustrates a constant over these decades: the determination of the European Commission to protect the allocation of financial resources from public, democratic decision making. While critiquing the CMU plan is invaluable, it is only effective as part of a larger critique on the historical, anti-democratic form of European integration.
This expert opinion was written in response to our research article on the European Capital Markets Union: Europe and the financial sector: a continuing love affair.
A day before the European Commission adopted the Capital Markets Union Action Plan, Jonathan Hill (European Commissioner for Financial Stability, Financial Services and Capital Markets Union) made his case for the CMU in the Financial Times. He argued that the CMU will generate economic growth and employment by creating a larger, more diverse pool of capital for small and medium-sized enterprises, giving EU citizens increased access to more direct, profitable forms of investment and attracting global capital bound for the large US markets. In addition, Hill notes that capital markets should not be disrupted by EU institutions and emphasizes that the Action Plan merely reinforces an inevitable development – an argument that has often been repeated by the European Commission over the last years, through various papers, public reports and press releases.
The history of a European capital market
The Treaty of Rome (1957) introduced the objective of the free, cross-border movement of capital. When this cross-border movement failed to take place, the Segré Report (1966) drew out a plan for a European capital market. Interestingly, in this report, the need for such a European capital market was argued for in a strikingly similar way as today. Following wage gains by workers as part of the post-war economic boom, there was a large amount of savings held in banks. With a growing lack of capital available for the operation and expansion of companies, the report called for these savings to enter the market. A European capital market was considered to be better suited to attract savers than national markets, as its larger scale offered greater profitability and a diversity of investment choices. Moreover, similar to Jonathan Hill, the Segré Report noted that a European capital market would develop spontaneously, but required concerted effort from the EEC to establish and facilitate it. Subsequently, the report concluded that no alternative to its proposals and a European capital market was available.
A constant amid change: limits to democratic forms of allocation
Yet the CMU is not the culmination of a meticulously-planned and perfectly-executed programme dating back to the 1950s. On the contrary, the history of the European capital market project (of which the CMU is the latest instalment) is one of change and adaptation. Throughout this history, the role of EU institutions in establishing and facilitating such a market has profoundly increased from a small number of directives to harmonize stock exchange listings, to the large framework of regulations and supervision in place today. Indeed, over the years the Commission has learnt that state institutions and capital markets are partners rather than opposites, and that ‘market forces’ require continuous and forceful reproduction by public state authorities, not in the least during times of crisis and recovery, as today. However, amid these changes, the Commission’s goal has remained constant over the decades: to protect the allocation of financial resources as a private matter left to capital markets. In other words, while financial institutions, instruments and practices have changed dramatically, and financial regulation and supervision in the EU is vastly different from the days of the EEC, the capital market itself has never been off the agenda.
Witnessing this reproduction of the capital market by the Commission, it is perhaps not surprising that the CMU plan follows historic changes to the EU’s financial regulation and supervision. These changes, as SOMO and The Broker note, have placed a growing number of ‘technical implementing measures’ outside parliamentary scrutiny. Moreover, these changes have greatly extended the participation of private market actors in legislative drafting and have expanded the use of ‘objective’ cost-benefit analyses, by which the most market-supportive legislation, regulation and supervision is formed. Two processes in decision-making that also occur after parliamentary passing.
A Capital Markets Union and the political level
Any criticism of the plan for the CMU should lead to a focus on its political economic dimension. Questions on the allocation of financial resources, for example, are far from ‘a-political’ questions best left to technocrats: they are moral questions on what our society values (social and materially) and how we want to change and develop. As such, the CMU is the latest effort in ensuring that answering these questions remains in the hands of a concentrated group of financial institutions. Therefore, to expand our critique on the CMU, we might want to approach it not materially, but also politically and socially, as part of an increasingly authoritarian way of governing European integration, with a form of collective decision making that starts by offering no alternative.
 The ‘Lamfalussy Framework’ (2001), with crucial adaptations since the ‘de la Rosiere Report’ (2009), including three new authorities since 2011: the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority.
 ‘Technical implementing measures’ fall under Article 290 of the Treaty on the Functioning of the European Union, which allows them to bypass the European Parliament and Council as they are deemed to involve no “strategic decisions or policy choices”. Examples of these include which financial instruments are considered ‘highly liquid’ and bearing ‘minimal credit and market risk’ under the European Market Infrastructure Regulation (EMIR) and what information financial institutions need to disclose about their ‘net short positions’ under the Short Selling Regulation.