深度-布鲁盖尔研究所-欧洲不应忽视其资本市场联盟（英文）-2021.6-19页_1mb

Summary of "Europe should not neglect its capital markets union"

Core Content

The document argues that the development of a Capital Markets Union (CMU) is crucial for the European Union (EU) to enhance financial stability, support high-growth sectors, and contribute to the green transition. It highlights the underdevelopment of European capital markets compared to the US and some Asian countries, and calls for regulatory reforms to address this gap.

Main Points

1. Capital Markets Union (CMU) is Urgent

• Financial Stability: CMU can serve as a shock absorber, reducing the volatility of financial systems and supporting economic resilience.
• Growth and Innovation: Capital markets are better suited to finance high-growth, high-risk sectors like digital and hi-tech industries, where intangible capital is prevalent.
• Green Transition: Equity financing promotes the reallocation of funds towards less-polluting sectors and incentivizes carbon-intensive sectors to adopt greener technologies.

2. Underdevelopment of European Capital Markets

• Market Capitalisation: The total market capitalisation of listed firms in the EU is much smaller relative to GDP compared to the US and Japan.
• Debt-to-Equity Ratios: European listed firms have higher debt-to-equity ratios than their US counterparts, indicating a greater reliance on debt financing.
• Venture Capital: Venture capital investment in the EU is ten times lower than in the US and significantly less than in some Asian countries like Singapore, China, and India.
• Mergers and Acquisitions (M&A): European firms are more frequently acquired by US firms, especially in the tech sector, suggesting a lack of internal investment opportunities.

3. Institutional Investor Behavior

• Pension Funds: EU pension funds are underinvested in equities and have a large share of their assets invested in non-EU markets, particularly the US.
• Insurance Companies: The euro-area insurance sector holds significant assets, but equity investment is limited, with a greater focus on fixed-income products.
• Investment Funds: Investment funds in the EU have grown but remain heavily skewed towards fixed-income products, with only about 30% of their assets in equities compared to 65% in the US.

4. Country Risk Premium and Investment Thresholds

• Higher Risk Premium: EU countries have a higher country risk premium (about 4 percentage points) than the US, making equity financing less attractive for European firms.
• Investment Threshold: This higher premium means European companies must achieve higher returns to access equity financing, which is a barrier for growth-oriented sectors.

5. Regulatory and Legislative Needs

• EU Action Plan: The European Commission's updated CMU action plan (2020) includes sixteen measures, but the language is vague and legislative progress has been limited.
• Proposed Reforms: Key reforms include strengthening the European Securities and Markets Authority (ESMA), reviewing the legislative framework for institutional investors, and harmonising insolvency laws to support market integration.

Key Information

• Market Capitalisation:
  • US: ~$45 trillion (175% of GDP)
  • Japan: ~$12 trillion (122% of GDP)
  • Europe (EU27 + Norway): ~$10 trillion (60% of GDP)
• Debt-to-Equity Ratios:
  • EU: 1.41
  • US: 1.02
  • China: 1.09
  • Japan: 1.20
  • South Korea: 1.14
• Venture Capital Investment:
  • US: ~0.633% of GDP
  • EU: ~0.044% of GDP
  • Singapore: ~1.83% of GDP
  • China: ~1.82% of GDP
  • India: ~1.5% of GDP
• Intangible Capital Investment:
  • US: ~10% of GDP
  • Europe (1995–2000): ~3.5% of GDP
  • Europe (2014–2017): ~7.6% of GDP
• M&A Trends:
  • 13.4% of European firms targeted by M&A were acquired by US firms in 2019–2020.
  • In the tech sector, nearly 20% of European firms were acquired by US firms.
• Pension Fund Assets:
  • US: ~$18.8 trillion (over half OECD total)
  • Euro area: ~€3 trillion
  • Netherlands: ~€1.8 trillion
• Insurance Company Assets:
  • Euro area: ~€9 trillion
  • US: ~$7 trillion
  • Germany: ~€3 trillion
  • France: ~€2.5 trillion
  • Italy: ~€1 trillion
• Equity Investment in EU Institutions:
  • Pension funds: ~30% in equities
  • Insurance companies: ~11% in equities
  • Investment funds: ~30% in equities
• Country Risk Premium:
  • EU: ~4 percentage points higher than the US
  • Germany (least risky): ~4 percentage points

Conclusion

The underdevelopment of European capital markets is a significant barrier to economic growth, innovation, and the transition to a greener economy. Institutional investors in the EU are underinvested in equity and more reliant on foreign markets. Regulatory reforms and legislative changes are needed to promote deeper and more integrated capital markets within the EU, ensuring that equity-based financing can support high-growth sectors and reduce financial instability.