BRUSSELS — The EU has long promised to tear down the barriers splintering its capital markets — but behind every delay lies a web of national interests and industry players profiting from the patchwork.
But now, Brussels’ top financial official is signaling that the era of diplomatic restraint regarding such forces may be coming to an end.
“We have been complacent, we have been settling for less,” the EU’s financial services commissioner, Maria Luís Albuquerque, told a room full of lobbyists and top officials in Warsaw last week, according to the text of a speech released by her office.
The stakes have arguably never been higher. There’s broad consensus among policymakers that mobilizing private investment will be key to shaking off economic stagnation in Europe and delivering on the Commission’s defense agenda.
Yet despite more than a decade of lofty ambitions and repeated political pledges, efforts to advance the capital markets union have consistently stalled.
Albuquerque isn’t just reciting the party line on the bloc’s broken markets. Since taking office in December, the former Portuguese finance minister — and ex-Morgan Stanley insider — has publicly called out the vested interests holding EU markets back.
“We have endured — and even reinforced — persisting barriers that hurt us all, even if some have an immediate gain. Not anymore,” Albuquerque said, at the Eurofi conference.
The object of her frustration are market players who are happy to preserve the status quo to fill their own coffers.
In Warsaw, Albuquerque called out players in the bloc’s financial plumbing, including trading infrastructure, post-trading and asset management.
As well as firms, she’s targeting protectionist behavior by national governments who keep markets fragmented to retain decision-making power, so that their own economies can benefit more in the short term.
Broken parts
European equity markets, stock exchanges and financial plumbing known as post-trade infrastructure are a “complex patchwork,” which creates “a huge obstacle to building bigger and better capital markets,” the think tank New Financial wrote in a 2021 report on markets fragmentation.
For as long as so many players remain in the market, the report said the EU “can tinker at the edges with the detail of regulation,” but “not much will change.”
To compare, U.S. equity markets are more than double the size of the EU’s, while having a small fraction of the exchanges for listings and trading that Europe has. The report found, for example, that the EU has 20 times as many post-trade venues as the U.S.
American markets also benefit from just one non-profit company, the DTCC, being responsible for all the clearing and settlement of equity trades. In the EU, on the other hand, there are 295 trading venues, 14 clearinghouses and 32 central securities depositories. Most equity trading takes place in domestic exchanges. And while there are bigger exchange groups in the EU now, like Euronext and Nasdaq, the national exchanges within those groups are still separate, meaning the market is still fragmented.
IMF research often cited by the Commission calculates the damage of single market barriers to the EU as equivalent to a tariff of over 100 percent.
In short, the barriers are real, self-imposed, and sacrifice long-term overall gains for the EU’s economy in favor of short-term gains for smaller players within the single market.
A lobbying story
“Behind every barrier and behind every source of fragmentation, there is someone who is making money from the fragmentation,” the Commission’s top financial services official, John Berrigan, said at a conference in Brussels in March.
He said the reasons for defending the entrenched interests are linked to the EU’s overall integration. The benefits of removing blockages are “diffuse” across the EU, making them harder to see and therefore fight for, whereas the loss of revenue to players benefiting from a source of fragmentation can be “quite concentrated.”
“So those people speak out and they speak loud,” Berrigan said.
One of the most heavily lobbied proposals in recent history sought to break down market barriers. The Commission’s Retail Investment Strategy, put forward in 2023, aimed for two major strides to boost the number of citizens investing — introducing accessible value-for-money benchmarks so investors across the EU could see how much bang they were getting for their buck, and banning kickbacks paid by asset managers to investment advisors in return for directing investors towards their products.
The kickbacks “generate conflicts of interest and can lead to the mis-selling of financial products, suboptimal asset allocation, and poorly performing investment products,” according to the NGO Better Finance.
The trouble is, the finance industry makes money from the practice. Governments, heavily lobbied by asset managers, insurers, and others who benefit from the kickbacks, pressured the Commission into removing the ban before the text was even officially proposed back in 2023. A final agreement on the proposal still hasn’t happened.
Another proposal, for an EU ticker tape which would publish data on the prices and volume of traded securities in the EU, improving overall price transparency and competition, was hollowed out after — again — pressure from governments lobbied by their stock exchanges, whose business model of distributing that data for a premium price would be threatened by the tape.
Under the political deal on that legislation, a weaker version of the ticker tape with less valuable information will still be set up, but stock exchanges are already forming consortia to bid to run the tape, meaning competition may be diluted.
Those are just two examples of many, but the pattern is clear — new EU initiatives which would deepen capital markets are hollowed out or ditched after governments, in thrall to their national finance industry champions, say no.
The rules
Then there’s the stubborn issue of the rules and who enforces them. Although most agree that having a single rulebook and a single supervisor for EU capital markets actors would make the market more integrated, governments won’t give up their ownership of the rules and their supervision, with high-level summits on the issue ending in stalemate.
They also engage in “gold-plating” — when countries roll out EU rules differently at the national level. This is often to protect national investors or domestic economic interests, a fact that creates barriers for foreign entrants, damaging competition, according to a 2024 report by the Polish capital markets lobby group CFA Poland.
The report singles out Germany, Spain, and Italy as high gold-plating countries, while it said investment hotspot Luxembourg gold-plates the least.
The Commission wants to change this, planning to convert directives — EU laws which can be interpreted nationally in different ways — to regulations. The latter, unlike the former, have to be rolled out the same way across the EU, something that should help to centralize more supervision at the EU level.
But governments are already pouring cold water on that idea. Polish finance minister Andrzej Domański, who is currently chairing EU-level talks as the head of the six-monthly rotating presidency, said there is “absolutely no room” for centralizing supervision, and that EU countries would only “accept” better “coordination” between existing national supervisors.
Ultimately, the Commission can talk tough on breaking down vested interests that are keeping the EU’s capital market undersized and fragmented — but national governments will still need to be the ones who move to break down any barriers.
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