Closer integration is the only way for European financial markets to survive after Brexit, according to a top EU official.
Valdis Dombrovskis, the EU’s financial services commissioner, said “integration is now an existential question” for Eurozone countries.
London is by far the biggest financial centre in Europe, but the UK’s plan to leave the EU will almost certainly increase the barriers for European firms seeking access to finance.
Speaking in Bruges, Dombrovskis said fragmented European financial markets need to pull together to continue to function properly.
He said: “Only together we have the depth and liquidity for markets to function efficiently, and the strength to finance our economies. Only as a single market do we have the scope for innovative finance to develop and scale up.”
Plans for capital markets union (CMU) have risen up the agenda since first being proposed two years ago as Europe contemplates its companies losing access to London’s deep pools of money from around the world.
The loss of financial services passporting after the UK leaves the EU and the Single Market means firms looking to fund the growth vital for prosperity will likely become increasingly reliant on the European banking system.
However, Europe’s banks are still struggling, with lenders in Italy and Greece labouring under the burden of non-performing loans on their balance sheets, while even German giant Deutsche Bank has seen shares fail to recover losses over the last few years.
Dombrovskis said there is a “growing sense of urgency for developing a Capital Markets Union” amongst EU member states.
Proposals include loosening controls on cross-border investment, improving access to growth-boosting investments for smaller enterprises, as well as more speculative pushes into fintech and green finance initiatives.
However, Dombrovskis also stressed the union would not loosen regulatory equivalence regimes for non-EU countries.
He said: “Equivalence is not a right for all third countries, and it is not a blank check whereby the EU would give up control over key systemic risks to its financial stability.”