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Capital markets union (CMU) is becoming an EU-wide sub-union’s entity dealing with the financial market issues, as well as a most vital part of the European integration processes. The CMU is a complex structure which includes, e.g. banks, securities, insurance and pensions, as well as financial and non-financial corporations. Peoples’ savings grow in importance; thus CMU might be “soon rebranded” and called “the savings and investment union” instead.
Financial services and markets within the CMU are under “executive supervision” by the Commission’s institutions and agencies. In the supervision and enforcement, the EU introduced a specific regulatory process for financial services, which consists of three authorities and a board to monitor systemic risks.
Following the financial crisis, the EU has reformed its framework for financial supervision and established a new European Systemic Risk Board for monitoring macro-prudential risks and transformed previous committees into independent authorities with enhanced powers. The three EU-wide supervisory authorities (so-called ESAs, which are operational from 2011) include: a) the European Banking Authority, EBA; b) the European Securities and Markets Authority, ESMA, and c) the European Insurance and Occupational Pensions Authority, EIOPA.
More on EU’s economy and CMU in: https://www.integrin.dk/2024/07/19/european-economy-and-euro-zone-challenges-abound/
Household’s accounting
Member states’ financial accounts form integral part of the national accounting framework and are compiled in accordance with European ESA 2010. These are significant tools for analysing financial developments and policy decisions which provide key statistical information on financial transactions, various financial flows and institutional financial balance sheets, including the household sector. Particular issues relating to the household sector include the growth and level of indebtedness, one of the main origins of the global financial and economic crisis.
Financial accounts show how borrowers obtain resources by incurring liabilities or reducing assets, and how lenders allocate their surpluses by acquiring assets or reducing liabilities. Financial assets held by households form an important part of overall wealth and are also an important source of revenue or property income (such as interest payments and dividends).
The structure of financial assets held by households may be used in economic analyses to study issues such as asset bubbles, or to assess financial risk, vulnerability and general welfare.
Twice a year, European Insurance and Occupational Pensions Authority, EIOPA publishes the EU-wide financial stability report that covers key developments and risks in the European insurance and pension sectors; the report also includes risk assessment of the EU-wide insurance sector using Solvency II data. Quite often it is a different type of risk, e.g. those related to macro-credit, market liquidity and funding, insurance, as well as profitability and solvency.
More on EIOPA in: https://www.integrin.dk/2024/07/26/eu-finances-the-role-of-european-insurance-and-occupational-pensions-authority/
“Savings and investment Union”
There are about €10 trillion of Europeans’ savings that “look very encouraging for the regional economy’s future”, noted researchers from Politico, although these savings form only small part of the CMU’s volumes. Politico even predicts that “it is possible that soon this sub-union might be rebranded into savings and investment union”*).
Some states in the eurozone, like France would like to create an EU-wide “common savings” entity to “to push European savers out of low-interest bank deposits into stocks where they can help companies grow”.
The ideas to activate investments have had already powerful backers (e.g. French President); according to European Commission President the upcoming five-year Commission’s term is “the time of investment”, which will start with “completing the capital markets union”. The leaders of Europe’s biggest stock exchange group, Euronext once mentioned the urgent need to finance risky innovation projects to bridge the technological gap with the US and other global regions.
Mentioned researchers in Politico postulate that unless the “turbo-charching the EU economy” is not taking place, to save Europe from “slipping into the financial abyss” would be impossible, i.e. it would be “the last chance to save the Continent”. The external opinion is that the European capital markets union as “a complicated project containing some pretty impenetrable ideas could be a game changer”.
*) General reference and source: Martuscelli C., Carlson K. and Cokelaere H. Europe’s €10 trillion gamble. –Politico, July 29, 2024.
In: https://www.politico.eu/article/europe-10-trillion-euro-gamble-saving-investment-economy/?utm_source=email&utm_medium=alert&utm_campaign=Europe%E2%80%99s%20%E2%82%AC10%20trillion%20gamble%20to%20turbocharge%20the%20economy /
Economy and finances
The European economy is increasingly lagging behind the US and China, particularly in industrial development and digital technology; besides, the EU’s cash-strapped startups are smaller and less successful than their overseas rivals.
As to the financial issues, the EU’s fiscal rules do not allow for more public as well as private money to invest in the biggest EU-wide priorities (e.g. green and digital transition, renewables and sustainable construction, etc.) as well as building up EU’s own defense industry in the face of growing military conflicts in Europe and around the world.
The newly suggested political guidance for up to 2029 revealed some bold visions on perspective development in the European economy.
Thus the actions for “new European prosperity” include, among other things, such directions as: – making business easier and deepening the EU single market, – implementing a “Clean Industrial Deal” to decarbonise growth and bring down energy prices; – putting research and innovation at the heart of member states economies; – boost productivity with additional digital technological solutions; – massively investing in the European sustainable competitiveness; and – tackling the skills and labour gaps.
More in: https://commission.europa.eu/document/download/e6cd4328-673c-4e7a-8683-f63ffb2cf648_en?filename=Political%20Guidelines%202024-2029_EN.pdf
The following developmental aspects in capital markets shall be mentioned specifically:
= Assets and liabilities. Total financial assets of households in the EU were valued at € 33 546 billion in 2022, 3.6 times as high as their financial liabilities, which were valued at € 9 350 billion, resulting in a net difference of € 24 196 billion (or 72.1 % of the value of the assets). This was lower than the same value in 2021, which stood at € 26 193 billion (or 74.1 %).
The annual rate of growth in total financial assets and liabilities of households in the EU-27 was over two percent in 2022 and a decrease of about 5 percent for assets. The highest annual growth rates for assets at that time were observed in Romania (13.3 %), Bulgaria (9.5 %) and Hungary (9.1 %). For liabilities, the highest annual growth rates were in Bulgaria (12.4 %), Lithuania (12.1 %), Estonia (10.8 %) and Slovakia (10.0 %).
About 14 EU states have had a negative annual rate of change for assets, with the largest negative rates recorded in the Netherlands (-11.9 %), Denmark (-8.9 %) and Sweden (-8.4 %). In liabilities the negative annual rates of change were registered for Denmark (- 8.6 %), for Greece (-6.3 %), Poland (-3.5 %) and Spain (-0.4 %).
The Netherlands has had the largest difference between the rates of change for assets and liabilities with 15.3 percentage points (pp), resulting from a decrease in assets and an increase in liabilities. Differences of at least 10.0 pp were also recorded for Slovakia, Sweden, Estonia and Belgium, also all with a decrease in assets and an increase in liabilities. The largest difference resulting from an increase in assets and a decrease in liabilities (8.5 pp difference) was observed in Greece. Among the non-EU countries, a particularly large difference was recorded in Turkey, as the increase in assets was 32.4 pp larger than that for liabilities.
Source: https://ec.europa.eu/eurostat/statistics-explained/SEPDF/cache/57942.pdf
As to financial corporations’ statistics on financial assets and liabilities: five EU member states (Germany, France, Luxembourg, the Netherlands and Ireland) collectively accounted recently for over 70 percent of the EU-27 financial assets and liabilities of financial corporations. The total financial assets and liabilities of financial corporations in the EU grew almost continuously between 1995 and 2021 but decreased in 2022.
= The financial corporation’s sector consists of institutional units which are independent legal entities and market producers, and whose principal activity is the production of financial services. Such institutional units comprise all corporations and quasi-corporations, which are principally engaged in: a) financial intermediation (through numerous financial intermediaries), and/or b) auxiliary financial activities (i.e. growing in size financial auxiliaries).
In the EU, the financial assets of financial corporations mainly comprise loans, equity and investment fund shares, as well as debt securities. The financial liabilities of financial corporations mainly comprise equity and investment fund shares, currency and deposits, as well as insurance reserves, pension entitlements and standardised guarantees.
Source: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Financial_corporations_statistics_on_financial_assets_and_liabilities
= In non-financial corporations the financial assets and liabilities are the following: four EU states (France, Germany, the Netherlands and Italy) collectively accounted for a majority of the financial assets (63.7 %) and for liabilities (57.8 %). The equity and investment fund shares accounted for the largest share of financial assets (48.3 %) and liabilities (56.6 %) of the EU’s non-financial corporations in 2022. The non-financial corporations sector comprises all private and public corporate enterprises that produce goods or provide non-financial services to the market. In the EU-27, the financial assets of non-financial corporations mainly comprise equity and investment fund shares, loans, other accounts receivable, currency and deposits. The financial liabilities of non-financial corporations mainly comprise equity and investment fund shares, loans and other accounts payable.
Source: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Non-financial_corporations_-_statistics_on_financial_assets_and_liabilities
Note. The new leader of the European Parliament’s Committee on Economic and Monetary Affairs, ECON for the next five years is the Frenchwoman Aurore Lalucq, a MEP with the Socialists and Democrats (S&D); it is a good sign that financial issues will be closely connected with true “lefties credentials”.
Reference to: https://www.politico.eu/article/green-leftie-econ-committees-new-chair-european-parliament-aurore-lalucq/
More on the issue in the following Commission’s weblinks: • European system of accounts – ESA 2010; • Financial flows and stocks (Eurostat metadata); • Publications of sources and methods for the compilation of annual financial accounts; • Key legal documents for institutional sector accounts.
General reference:https://www.integrin.dk/2024/07/22/anatomy-of-digital-finance-in-the-european-union/