Christine Lagarde, president of the European Central Bank, proposed a European equivalent to the U.S. Securities and Exchange Commission and a consolidated stock exchange to mobilize funding for tackling the region's challenges of deglobalization, demographics, and decarbonization.
Speaking at the European Banking Congress in Frankfurt on Nov. 17, Lagarde drew parallels with U.S. bond markets that financed 19th-century railroad construction. She stressed the need for "a generational effort" to facilitate Europe's energy transition and digital transformation, requiring an additional €620 billion annually until 2030 and €125 billion per year, respectively.
Lagarde highlighted Europe's decade-long struggle to create a "capital markets union." She noted the stark differences between the EU and U.S. financial landscapes, with European bond markets at one-third the size of the U.S. and EU venture capital funding at only one-fifth.
The ECB president suggested enhancing the European Securities and Markets Authority with a broader mandate for direct supervision. She emphasized that a strong institution and a comprehensive, single rulebook are crucial for uniform and effective regulation.
Lagarde pointed to the need for consolidating Europe's fragmented financial markets. Europe's stock market is about half the size of the U.S. market, yet has three times as many exchange groups. This fragmentation hampers the development of larger capital markets, which are essential for funding European companies.
A European consolidated tape, as proposed by Lagarde, could integrate market infrastructure and exchange groups across borders, facilitating the emergence of more efficient capital markets.
Echoing commercial bank leaders at the congress, Lagarde called for liberalizing Europe's securitisation market. This move is crucial, especially following the German constitutional court's rejection of a €60 billion fund for climate and energy transition. It could unlock potential by allowing banks to package loans and sell them to investors.
An ECB survey highlighted that almost 40% of small and medium-sized enterprises consider the lack of investor willingness to finance green investment a significant obstacle. This underlines the urgency of developing a more integrated and robust capital market in Europe.
Lagarde warned that the EU’s €800 billion recovery fund, initiated in response to the pandemic, is set to expire in 2025. Heavily indebted governments will struggle to provide sufficient financing under the current framework.
