False promises of growth and risks to financial stability

Capital Markets Union (CMU) is a flagship project of the European Commission under President Juncker. It is presented as a way of stimulating lacklustre economic growth in the EU and overcoming the problem of persistently high unemployment in many member states by improving the financing conditions for non-financial corporations especially small- and medium-sized enterprises (SMEs) as well as for infrastructure projects. This promise is based on the assumption that, on the one side, there are large amounts of money capital desperately seeking profitable investment while, on the other, there are businesses that would like to invest but cannot do so because banks are not giving them loans. So if banks do not bring these two sides together, the capital markets should do the job, but the right conditions need to be put in place first. This project is not just based on unconvincing arguments and flawed theoretical assumptions. A closer look reveals that it is not really about stimulating growth and investment. It is about achieving long-term structural change in the form of a capital market-oriented restructuring of Europes financial system(s). Moreover, under current economic circumstances sluggish demand and an excessively large financial sector expanding the share of market-based financing would create or exacerbate economic and financial risks without corresponding benefits. This briefing paper explains what the CMU project is about, what the Commission’s stated intentions and reasons are and how it ties in with previous European legislative initiatives. It also provides a critique of CMU by questioning its effectiveness as well as the Commissions motives for embarking on this project, and by discussing a number of risks and concerns. It concludes with an overview of the policy process ahead and the options for non-governmental organisations and social movements.

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publication cover - European Capital Markets Union
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