In the political debate surrounding the deepening of European capital markets, the German Council of Economic Experts has now joined in. Together with its French counterpart, the Conseil d’Analyse Économique (CAE), the economists have published a set of proposals for the new EU Commission.

„Making progress Capital Markets Union is more crucial than ever“, Ulrike Malmendier, who oversees the topic at the German Council of Economic Experts, said in a conversation with Börsen-Zeitung. „This is about new growth prospects for the EU, as well as greater resilience of European economies.“

In a joint statement, the German and French economists pointed out once again that the European financial architecture remains predominantly bank-based, with financial flows largely staying within national boundaries. Malmendier acknowledged that political measures could also be implemented at the national level, but stressed the importance of not halting progress at national borders in deepening markets. „Larger markets make it easier for investors to invest – provided these markets are not fragmented," she said.

Unlike their countries' finance ministers and banking associations, the Council and CAE do not focus their political demands on boosting securitisation. Malmendier acknowledges that securitisation had been somewhat demonised in Europe after the financial crisis. But she argues that "more securitisation is not what we urgently need in Europe right now for more growth and stronger crisis resilience.“ Instead, she highlights the necessity of making equity financing more attractive. „What we need is not more bank loans, but growth capital for young and possibly risky companies developing new ideas.“

„These start-ups especially need more and larger financing rounds in the later stages“, states the Economics Professor from UC Berkeley in California. Accordingly, the proposals presented urge the EU Commission and member states to increase public co-financing in the venture capital market. This could be achieved through additional funding for the European Investment Fund (EIF) and the European Tech Champions Initiative (ETCI).

„It is important to maintain a system where the experts are left to decide which companies receive large funding rounds,“ clarifies Malmendier. „This should not involve an industrial policy.“

In June, even the EU Summit explicitly addressed the further development of CMU, and Malmendier notes that there is currently momentum in Brussels to make progress on this issue. „Even in tackling difficult issues like harmonising insolvency rules, there seems to be movement“, she says. Investors have repeatedly emphasised in recent years that differing insolvency rules are one of the main problems of CMU, and policymakers are now increasingly aware of this. „Action must be taken, though achieving complete harmonisation may be challenging", she says.

Enhancing the European supervisory authorities is another key demand of the Council of Economic Experts and the CAE. Malmendier believes that agencies like the European Securities and Markets Authority need to overcome „national fragmentation“ and be freed from national interests. „A reform and strengthening of ESMA could also reduce bureaucracy“, the economist asserts. She acknowledges concerns about duplicative structures, which the various finance minister have warned about. However, these could be avoided. „You have to be prepared to relinquish national competencies“, says Malmendier. And that would certainly also affect BaFin. „Of course, there could be a certain feeling of pain.“

Other proposals in the joint statement include expanding the European Single Access Point (ESAP) initiative, strengthening funded supplementary pensions, and addressing „insurers' decisions that are unfriendly to equities“. It also takes up an already familiar proposal from the German Council of Economic Experts – the introduction of publicly financed investment accounts for children.

This could also be introduced at the EU level, and could enable children to experience different financial cycles, and thus learn to trust the capital markets. According to Malmendier, this idea from the economic experts has been received with great interest not only in German politics, but also in France.