Recent efforts to revive the quest for the EU’s Capital Markets Union agree on one thing: for the bloc to achieve its objective of a deep and liquid capital market, it needs much more than just public money.
It needs liquid markets and investment opportunities into which Europeans can park some of their €33tr of savings in safety.
Strangely, bonds don’t seem to figure much in the conversation. Instead, the primary focus from official institutions and regulators is on the equity capital markets.
For example, one proposal to connect the real economy with European savings is to create a single entrance to public equity capital markets for small and mid-caps to list and therefore, for institutional and retail investors to access more companies to invest.
Another report focuses on the potential of securitization to tap private savings in funding the economy.
One of the problems with that suggestion, however, is the lack of harmonisation across the EU’s national mortgage markets of the loans that would be securitized.
But if you want a harmonised European market, there is one already — the bond market.
It is deeper, wider, and more liquid than any of Europe’s equity markets, which have had a hard time hosting listings for the last couple of years. To attempt to first build CMU in equities is like digging a swimming pool in your garden when you live at the seaside.
Bonds offer retail money simplicity and safety too — far more than equity markets, certainly, where owners are bottom of the repayment pile when things go south.
Instead of creating a securitization savings platform from scratch or fixing easier conditions for SMEs to list in the EU, it would be simpler and easier to open the bond market to a broader audience of investors, including retail.
The EU would do well to follow the path of least resistance if it wants to finally bring CMU to life.