Brexit: integration of EU capital markets
Brexit offers EU-27 countries a chance to take some of London's financial services activity. But there is also a risk of market fragmentation, which could lead to less effective supervision and higher borrowing costs. To get the most out of Brexit, the EU financial sector needs a beefed up ESMA.
London occupies a central role in the European financial system. Brexit will therefore generate significant risks and opportunities for the financial system of the remaining members of the European Union (EU-27). To successfully manage the resulting shifts, the EU-27 needs to adapt its financial regulatory structure. And with Britain's departure from the EU single market nearly certain to occur before mid-2019, the EU-27 should not wait.
The main risks relate to the supervision of wholesale activities of financial firms and capital markets. Many wholesale market activities will need to be relocated from the United Kingdom to the EU-27 so that financial firms can keep serving local customers within the single market. To address these risks, European leaders should reinforce the European Securities and Markets Authority (ESMA) with significant additional resources and expanded responsibilities.
Market disruption is not the main risk for the EU-27’s single market. Most market participants have enough time to prepare for the worst-case scenario that there is still no agreement on “B-day” in early 2019. Rather, the main risk is market fragmentation along national lines with the loss of the London hub. Such fragmentation could result in less effective market supervision than is currently achieved by the UK authorities, a higher likelihood of misconduct and systemic disturbances, and a more onerous cost of funding for EU-27 corporates and households.
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European Commission presents White Paper on the future of Europe
On 1 March, the European Commission presented a White Paper on the Future of Europe, which forms the Commission's contribution to the Rome Summit of 25 March 2017, the moment when the EU will discuss its achievements of the past 60 years but also its future with27 Member States.
The White Paper looks at how Europe will change in the next decade and sets out five scenarios, each offering a glimpse into the potential state of the Union by 2025 depending on the choices Europe will make. The scenarios cover a range of possibilities and are illustrative in nature. They are neither mutually exclusive, nor exhaustive:
- Scenario 1: Carrying On - The EU27 focuses on delivering its positive reform agenda in the spirit of the Commission's New Start for Europe from 2014 and of the Bratislava Declaration agreed by all 27 Member States in 2016.
- Scenario 2: Nothing but the Single Market – The EU27 is gradually re-centred on the single market as the 27 Member States are not able to find common ground on an increasing number of policy areas.
- Scenario 3: Those Who Want More Do More – The EU27 proceeds as today but allows willing Member States to do more together in specific areas such as defence, internal security or social matters.
- Scenario 4: Doing Less More Efficiently - The EU27 focuses on delivering more and faster in selected policy areas, while doing less where it is perceived not to have an added value. Attention and limited resources are focused on selected policy areas.
- Scenario 5: Doing Much More Together – Member States decide to share more power, resources and decision-making across the board. Decisions are agreed faster at European level and rapidly enforced.
To encourage this debate, the European Commission, together with the European Parliament and interested Member States, will host a series of 'Future of Europe Debates' across Europe's cities and regions. The European Commission will contribute to the debate in the months to come with a series of reflection papers on:
- developing the social dimension of Europe;
- deepening the Economic and Monetary Union, on the basis of the Five Presidents' Report of June 2015;
- harnessing globalisation;
- the future of Europe's defence ;
- the future of EU finances.
Like the White Paper, the reflection papers will offer different ideas, proposals, options or scenarios for Europe in 2025 without presenting definitive decisions at this stage.
President Juncker's State of the Union speech in September 2017 will take these ideas forward before first conclusions could be drawn at the December 2017 European Council. This will help to decide on a course of action to be rolled out in time for the European Parliament elections in June 2019.
To read the White Paper, click here.