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History of the EU financial integration
Capital Markets Union is, by nature, a step in the history of the European Union financial integration, whose dynamic is to lead to freer movement of capital. The Treaty of Rome, establishing the European Economic Community in 1957, already expressed the necessity to instaure free movement of capital in between the member states. Then, the directive of 1988 implemented it by preventing any restriction on free capital flow. In 1999 was created the financial services action plan, first step in creating a single market for capital, and in 2011 the European Supervisory Authority, in order to insure the European financial markets stability. Only four years later, is the CMU project presented by Jean-Claude Juncker.

Characteristics of the EU financial system
EU economy remains bank-oriented, especially when compared to the United-States. . It means that corporations usually prefer to borrow money to the banking sector instead of financing their investments through financial markets. According to the OECD analysis, this is partly due to the fiscal bias : in most European countries, firms benefit from tax advantages if their have to reimburse a bank loan, but that is not the case if they emitted obligations on the capital markets. Therefore, there is a strong financial incentive for European companies to favour the banking sector. This high reliance on the banking system implies less stability for the European economy, hence the position of the European Commission, which advocates for a diversification of financing sources. SMEs, which have particular difficulties in integrating the financial markets but which represent a good share in the created value of the European firms, largely contribute to this tendency.

The second characteristic is part of the bank-based nature of the EU economy : it is the European saving patterns. Whereas the United States population choose to invest in long-maturity-assets through pension funds or life insurance, European savers prefer easily accessible financial instruments, such as deposits or short-maturity-assets. This economic behaviour generates a lack of financial profitability of the EU and accentuate the importance of banks as the main funding providers of the European economy.

The third characteristic of the European financial system is that capital invested stay usually in the national market : it is the home bias. Even if before 2011, there was a positive trend for cross-border investments, most of the capital flow was remaining within the national frontiers of the member states and European financial integration is still limited. This lack of cross-border investments prevent high-growth-potential companies from getting the financial ressources they need to develop innovations and become more competitive. In fact, shareholders prefer buying shares from their national companies, creating an important hinder to European financial integration, because they have to face regulation barriers if they want to invest in another country of the EU.

Impact of the 2011 crisis
The financial crisis had two main consequences on the financial integration of the European Union. Firstly, it showed the instability induced by an excessive reliance on banks' loans. When there is uncertainty, the offer of credit is reduced, impacting negatively all the economic activities depending on it. It is especially the case for Europe, whose SMEs mainly get financed by the banking system. Dealing with the aftermaths of the 2011 crisis, the dependency of the EU economy on banks made it harder to growth and employment, according to the former President of the European Commission. Secondly, the financial crisis increased the fragmentation of the European capital markets by increasing the domestic bias. There was a sensible reduction of cross-border investments after 2011, because the previous financial integration was led by banks investing on international financial markets. Once affected by the crisis, their withdrawal drove the European financial system to more fragmentation than before.

Impact of the Brexit
Most of the financial power of the European Union is located in the City, in London. However, following the referendum of the 23rd of June 2016, the United Kingdom initiated the procedure to get out of the European Union. Even if some British firms are moving the continental Europe, Brexit means the loss of most of the financial expertise of the EU. In spite of that, the European Commission asserted the consistency of the Capital Markets Union action plan, already launched at the time, and accelerated the efforts to implement it.

= Progress =

Achievements
Since Jean-Claude Juncker's first mention of the Capital Markets Union, in November 2014, and the adoption of the action plan, in September 2015,, many legislatives actions and non-legislative initiatives were led by the European Commission to reach its objectives. By the time of the mid-term review of the CMU action plan, in June 2017, 20 of them were already implemented.

Situation since 2017
Even though 9 new action priorities were added to the action plan in 2017, the CMU project faces difficulties to go forward since its mid-term review. This stagnation might be due to multiple factors, such as the return of growth in the Eurozone countries, reducing the economic incentive to reform its financial system, the rise of political tensions within the EU or the prioritisation of national issues by the European political leaders. Moreover, as the effects of such structural reforms can hardly been observed in the short term, it is difficult to analyse the results of the Capital Markets Union action plan without a bigger time perspective than we have today.

Economic goals
The European Commission designed 3 different levels of objectives for the Capital Markets Union, from the global economic goals to the more concrete necessity for the construction of an integrated financial system. These economic objectives frame the six intervention areas encompassed by the action plan.

Overarching objectives
The Capital Markets Union aims to ease the access of firms and states to financing, which has become more difficult since the financial crisis of 2010-2011. The creation of a single market for capital would send an incentive to private and institutional actors to invest the capital available, by creating new possibilities of cross-border attractive investments. This renewed possibility of financing may help the economic agents to come back to the level of growth they had before the crisis, impacting positively the employment rate. It is especially true for SMEs which might need more financing than what the banking system can offer them and therefore, would benefit from more accessible capital markets. CMU would also make the institutional investments in infrastructures way easier.
 * Facilitating the financing of both private and public sector on the financial markets

Economic stability depends on the diversification of the source of financing. When encountering a crisis hitting a particular source of financing, such as the banks in 2010, it is important to be able to get capital otherwise, both for the states and the companies. That is why giving and incentive to get financing through capital markets with the CMU would make the economy more shock-resistant, because it would depend less on the banking system. On the investors side, stability is ensured by the portfolio and the geographical diversification of the assets. It reduces the loss of value if a specific economic area is hit by a negative shock when you have invested in several types of activities and it reduces the loss if a specific country is touched when you have invested in several countries. Hence, the risk-sharing influence of the CMU may strengthen the European economic stability. Regarding sustainability, the increased access to capital is considered as a mean to finance environment-friendly economic projects and to encourage sustainable development.
 * Ensuring the stability and the sustainability of the European financial system

Strategic objectives
By increasing the range of investments opportunities, a CMU objective is to improve the capital markets effectiveness. This means improving the allocation of capital, leading it to the most efficient economic actors among the European firms, because a single market for capital would have given the possibility. The efficiency of capital markets deals with the competition between the European financial institution : making them gather in a common capital market would give the financial institution the incentive to become even more efficient. Competition would also lead to more diversification in terms of liabilities and assets. Market fatigue is the discredit from which asset and security exchanges suffered after the financial crisis. It reduces the capital flow on the capital markets and has a negative impact on the economic activity.
 * Improving the competitiveness and the efficiency of the European capital markets, in order to fight against the "market fatigue"

The improved integration of the capital markets with the CMU is meant to increase cross-border risk-sharing and to reduce the home-biais of the investments. Currently, there are still some hindrances, as the differences in terms of regulation among the member-states, which persuade the economic actors to invest in their home-country. Actually, the multiplication of European rules regarding insolvency, restructuration or taxation represents a a lack of legal security for the investors. As the main point of a single market for capital is to remove the barriers of free capital flow in-between the member-states, the objective is to attract the savings of the richer countries towards the poorer ones. Removing the barriers preventing European exchanges, in order to act like a unified territory, is the very sens of integration. It counters the "integration fatigue" : the increasing difficulty for the European leaders to pursue the European integration. It is an incentive to invest abroad, therefore reducing the home-biais. Moreover, investing in another country means a geographical diversification of the assets possessed, which has a positive impact on the economic stability, as explained previously.
 * Pursuing financial integration, in order to fight against the "integration fatigue"

The "eroding consensus" is the increasing difficulty to get the support of the European population for the European institutions' decisions. The erosion is illustrated by the negative response of France and Netherland to the European referenda on the constitution of the EU in May 2005. The Capital Markets Union's goal is to represent a part of the solution to this issue, by improving the cohesion in Europe. Firstly, it is a project encompassing different currencies, therefore encompassing countries outside the Eurozone area. Secondly, it involves few changes in the way European institutions work, preventing any opposition to a total overhaul. Finally, it does not require risk-sharing from the member-states, which could have made the population reluctant to the CMU. Its main contribution to the European cohesion is its goal : to equally provide financing on capital markets, across the European territory, and to provide this access on the basis of the economic actors' merit.
 * Increasing cohesion within the European Union, in order to fight against the "eroding consensus"

Operational objectives
Investors on the capital markets don't always have the necessary means to gather the needed information in order to invest, while financing institutions do. However, incertitude about there investments may prevent them from investing as much as they could have if they have had the adequate information. The latter would have allowed them to evaluate the worth of an asset and juge if its price corresponds, or not, to its value. Therefore, the first operational objective of the CMU is to increase the information flow to make the price setting on the capital markets more precise.
 * Improving data availability across European countries

As it might be complicated for a small firm to produce the information necessary to enter the capital markets, the CMU's purpose is to set up the required execution infrastructures to ease their access. This means reducing the regulatory obstacles stopping SMEs and start-up to finance themselves through capital markets, so that every economic actor could have an equal access to the capital needed. Concretely, it leads to a simplification of the rules regarding the information production for small emitters.
 * Facilitating the access to markets

Because of the lack of confidence in the regulatory structures protecting the investors, the amount of capital invested might be reduced. Consequently, the third operational objective of the CMU is to give more strength to the contracts and the rules protecting the capital providers so that they regain confidence in the capital markets. The idea of the project is that legal certainty that they are no going to loose suddenly the wealth they have invested will encourage the use of capital markets as a good mean to yield a profit from the savings rather than keeping it on a bank account.
 * Strengthening the implementation of the regulation protecting the investors

Actors targeted
The Capital Market Union action plan aims at affecting positively 4 types of economic actors :

If citizens had the possibility to access capital markets in an easy way, they could use their savings to invest instead of keeping them on their bank account. They would do so because of the wider range of possible investments. It may be more profitable for them and increase the money they have for their retirement.
 * Citizens : improving the profitability on savings for retirement and the opportunities of investments

Firms, and especially SMEs which still face difficulties entering capital markets, would get access to European capital in an easier way on a single capital market where the information regulation would have been adapted to their situation. This is particularly true for the start-ups experiencing high growth and in need of a quicker financing to sustain their development.
 * Companies : extending the possibilities to be financed differently than by a bank loan

As explained previously, the harmonisation of the regulation across the European Union would allow investors to enter other member-state's capital market more easily. In fact, it would reduce their cost of adaptation to the national regulation : the financial regulation of a country would be the one of every member-state. If investing in your home capital market is as simple as investing in another, it would increase the investments opportunities for the investors.
 * Investors : reducing the hindrance to invest in another member state

Because risky investments opportunities would go towards capital markets, a bigger portion of the banks' balance-sheets would be dedicated to the real economy. This is a way for the European Commission to prevent the 2010-2011 financial crisis, when the banks's balance-sheets were composed of too many subprimes assets, from happening again.
 * Banks : extending the lending opportunities and encourage sane balance-sheets