As observed, a better harmonization of capital gain taxes would benefit european citizens desiring to invest across the European Union, and ensuring freer movement of capital, essential for cross-border investment However, competition between countries, ideological debates and institutional egos are sure to make tax incentives a thorn into the implementation of the SIU.

Furthermore, directing new flows of investment and financing into the EU companies, especially SME’s and Startups, which often can’t depend only on bank credit, is a vital component of the future of the SIU, reinforced by the recommendations of the Letta report and the Draghi report, as well as part of the goals put forth by the recently launched “EU Startup and Scaleup Strategy”. To do so, the role of private capital markets and the revitalization of the european securitization (the conversion of an asset, especially a loan, into marketable securities, typically for the purpose of raising cash by selling them to other investors) could assist in improving the IPO ecosystem ( avoiding an outlook similar to that of the London Stock Exchange), while actually boosting the diversification of risk capital investment flows into new companies.

The mobilization of institutional investors is also vital in ensuring that improved flow of capital keeps the SIU’s aspirations within reach. Insurance and pension funds play a role in ensuring investment in equity markets, which was recently highlighted by Maria Luís Albuquerque, who argued that member states will be asked, under the SIU, to strengthen the pillar II and III of pensions (pillar I is Social Security; pillar II are pension funds and pillar III is voluntary and offers greater flexibility of choice). The Commission’s support for strong multi-pillar pension systems, on top of public, state, pensions, would assist on growing concerns of Social Security sustainability in a greying continent, while also injecting further capital into the European financial system. Yet, in an European Union built on higher expectations of the social security net, comparative to the US, the need to strengthen private participation for pension, though an inevitable topic, is also certain to involve discussions that should be approached pragmatically, as mentioned by the EU Commissioner.

In order to deliver on the potential scale up of the European financial markets, scalability of the European financial infrastructure is to also to be considered, including initiatives such as the completion of the Banking Union, including Single Supervisory Mechanism and of the Single Resolution Mechanism. However, it remains to be seen whether the wish to not put European banks (and financial institutions) at a disadvantage on the international stage due to competition laws/concerns will lead (national and/or) Competition authorities to be more strict on their opposal to acquisitions and mergers in the sector to further consolidate the sector, some of which seem to already be building up, with the moves of Italy’s Unicredit on Germany’s Commerzbank and the Dutch lender ING’s announced intention to acquire rivals, as well as those of financial markets operators, such as Euronext.

The ability to efficiently supervise all the new activity expected, as well as helping reduce existing capital market fragmentation, regulatory supervision is, without a doubt, a clearly important point. While the framework that sets the role of 3 European Supervisory Authorities (EBA – European Banking Authority; ESMA – European Securities and Markets Authority; EIOPA – European Insurance and Occupational Pensions Authority) is proposed to be reinforced and converged, recommendations are to be made that include potential transfer of national tasks to EU-level supervisors. While a stable, smooth and forward thinking policy and regulatory framework would be set to improve European financial markets, such a move of tasks is bound to be troubled, given the fees received by national supervisors, charged to those being supervised. 

With better supervision, improved integration is more likely to assist in growth expectations across member states, independently from the size of their national financial markets, given that already large markets would have their size potential expand and small capital markets would see their companies have more capital potential within the European Union. Alongside this, the potential for the combination of EU bond emissions could prove to be a center-piece of the SIU, allowing for super secure, highly stable and secure assets, in high demand from institutional stakeholders, capable of competing with US Treasuries, even more if national issuances are made homogeneous. With such a decision, it would be possible to reinforce the role of the euro as an international reserve of value and allow the EU (and its member states) to better serve their geostrategic goals.

Finally, the application of the European capital targeted to be unlocked is to be promoted for strategic investments, such as the green transition, digitisation and defense. The widening of capital flow, if set alongside incentivizing tax treatment, can help improve the financing available for European companies that provide innovation in such areas, while providing clear frameworks on how sustainable finance can operate. In parallel, incentives to digitalization could also assist in making the financial markets themselves more easily accessible to Europeans across the European Single market, in a scenario where product subscription could be performed across digital borders, as well as more independent from the hegemony displayed, so far, but now fragilized, of US capital markets, through the investment in competitors (such as the case of potential competition to Paypal, MasterCard and VIsa, from a cross-EU joint venture).

The SIU Dream Unlocked

The complexity of capital markets, alongside the plurality of stakeholders involved, will make the successful implementation of the SIU an herculean task. Not only do capital markets include a tremendous number of areas across a pipeline of activities, all with their own key role, risking going unnoticed or neglected, but a fight due to national and regional interests is surely expected to happen, with political ideologies likely to influence pragmatic discussion on what could be a greater common goals.

However, despite the numerous obstacles, with the participation of stakeholders, hopefully triggered by the realization that greater growth and potential can be achieved by coming together on the chance to revise capital markets’ current infrastructure into a much smoother, open and dynamic framework, favorable to all those that believe in the essence of capital markets: allow for better allocation of capital in the economy.

The task of implementing the SIU will not be without its obstacles and it will require a wide array of ambitious initiatives and changes across the entire EU, but the prize on the table is too good to dare dream small.