The CMU is dead, long live the SIU!

The Capital Markets Union (CMU) has a shiny new name. But can the Savings and Investment Union (SIU) succeed where its predecessor failed? A conference convened in Paris this week by the European Securities and Markets Authority (ESMA) had plenty of advice for lawmakers, as well as a call to be “bold”.

Everyone agrees that Europe has a problem. Its 450 million citizens have a collective 11 trillion euros in savings on deposit in banks across the EU, according to Maria Luís Albuquerque, commissioner for financial services and the Savings and Investments Union at the European Commission.

What lawmakers, financial firms and regulators have failed to do in past decades, however, is persuade EU citizens to embrace investment in capital markets en masse, as a way to earn higher returns and fund the development and expansion of European businesses — hence a rebrand that moves the emphasis from ‘capital marketsʼ to ‘savings and investmentʼ.

Opening the conference, ESMA chair Verena Ross said the EU should avoid merely replicating existing systems. “Too often I hear EU capital markets compared to the US, as if to say that by copying what they do, we too can simply reproduce their success. The EU must define its own vision, grounded in its unique strengths and values,” she said.

Incentivise savers

Incentivising savers to put their money to “more productive” use was key, said former Italian prime minister Enrico Letta, during a panel discussion at the conference on February 5. “We have to convince citizens that wealth depends on this cooperation at EU level,” he added.

A report by Letta in April 2024 first coined the phase ‘savings and investment unionʼ, and set out a number of “bridges” to could help direct savings to the capital markets. These included tax incentives, auto-enrolment for pensions, securitisation and giving ESMA more power to supervise pan-European investment groups.

David Wright, chair of financial services think tank EUROFI, said the EU had to make the macroeconomic case for the SIU. He urged the European Commission to be bold and set out what moving savings into investment would mean in terms of economic growth in each member state.

This would enable the commission to “push back” against national interests, Wright said, adding that such self-interest could not be allowed to hold up the SUI. “If we can’t move forward together, letʼs use the 28th regime. But letʼs move forward,” he said.

The 28^th Regime is an idea that has been around for decades. It refers to a pan-European legal framework that is separate from any of the 27 member states’ national regimes and can be used as an alternative to them.

Alexandra Jour-Schroeder, deputy director-general for financial stability, financial services and Capital Markets Union at the commission, said the 28^th regime was worth looking at. “How far should it go? Which areas should it cover?” she said, adding it could be an alternative to always trying to “harmonise as much as possible”.  

Fragmentation

The topic of fragmentation of supervision came up repeatedly during the conference.

“The way supervision is organised can harm markets, ” said Marie-Anne Barbat-Layani, chair of French securities regulator Autorité des Marchés Financiers, adding that more supervisory power to should be transferred to ESMA.

It was “absolutely stupid to have each national supervisor developing new competencies” for large market infrastructure and crypto platforms when ESMA could “have direct powers”, added Barbat-Layani, who supported ESMA having direct supervision over large asset managers to make it “more efficient”.

Referring to supervisory harmonisation as the “elephant in the room”, Wim Mijs, CEO of trade body the European Banking Federation, said it should be a priority for the SIU.

Achievable

A poll at the conference showed that 69% of attendees were unclear on the SUI’s priorities, while panellists were also concerned the forthcoming plan might be too broad to deliver.

The consensus was that the commission needed to focus on a few achievable priorities.

Mijs said that simple transparent products were needed, and Adena Friedman, chair and CEO of stock exchange Nasdaq, highlighted the success of Swedenʼs individual savings account (ISK) product. Aleksandra Maczynska, managing director of the European Federation of Investors and Financial Services Users (Better Finance), agreed the ISK could be a model for member states wanting to encourage investment through tax incentives.