The EU Commission’s draft communication on the planned financial market reforms of the new von der Leyen Commission has been leaked. The pathbreaking communication sets out the EU Commission’s planned measures for banks, insurance companies and capital markets for the coming years and is to be adopted by the College on 19 March 2025.
Sven Giegold, Deputy Chairman of Bündnis 90/Die Grünen and long-time former coordinator of the Green Group in the European Parliament’s Finance Committee (ECON):
‘This draft communication is a threat to sustainable growth in Europe. Europe urgently needs a completion of the internal market – especially for banks and capital markets. Only integrated capital markets can finance the innovative companies that Europe needs for the Green Deal. The draft communication is as cowardly in all core issues as if Draghi’s wake-up call had never been written.
For over 20 years, the EU has been endeavouring, largely unsuccessfully, to remove the many obstacles in the single market for banks and capital markets. In order to remove the relevant stumbling blocks to the integration of the financial markets, the EU has to drill thick planks. So far, the member states have not been prepared to do this. The EU Commission has responded to this with ever more incremental steps towards greater integration. Although this salami-slicing tactic keeps legislators and all affected financial companies busy, it hardly achieves any capital market integration.
With its new communication, the EU Commission has now initiated the next act of this dummy activity. The EU Commission merely wants to respond to the blocking of the really important legislative proposals in the Council of Member States with courageous appeals. Among other things, the EU legislative proposals on insolvency law, withholding taxes, the debt-equity-bias and deposit insurance are blocked. Instead of pulling out all the political and legal tools to make progress here, new, less important laws are now to be proposed over the next few years. The EU Commission could consistently pursue existing violations of the free movement of capital and other applicable EU law with infringement proceedings. The Commission could also try to motivate a group of states to make faster progress on capital market integration in the framework of enhanced cooperation. In the event of serious distortions in the internal market, Art. 116 TFEU could also be considered to overcome the unanimity rules in tax law. Only the clear words in the area of trade and post-trade structures are pleasing. The same applies to the strengths of the ‘auto-enrolement’ in the area of pension schemes. Here the Commission appears to have brave officials and has had obviously enough.
In its economic substance, the proposals represent a further departure from scientific financial market regulation. Possible changes to capital requirements are announced for economic policy reasons. However, the experience of various costly financial crises shows that capital requirements should be set strictly empirically on the basis of long time series and not politically. At the same time, financial market regulation offers a rewarding field of activity for the intelligent reduction of unnecessary bureaucracy. However, the motto must be: Simple and tough rules that strictly address relevant risks based on data instead of regulating everything in absurd depths.
In principle, it is right to strengthen the joint EU capital market supervisory authority ESMA in Paris. However, it is one-sided to keep insurance supervisory authority EIOPA in Frankfurt weak, even in the area of very large insurance companies.
The failure to address the specific opportunities and obstacles for innovative financial market players in the draft communication is astonishing. FinTechs and other new business models in particular represent an opportunity for more competition on the financial markets and are victims of the nationally fragmented capital markets in Europe. It is also astonishing that the communication does not take stock of the ongoing unfair competition from cryptocurrencies. Despite all attempts of regulation, the beneficial owners behind individual payments are almost impossible to track down, even for the purposes of criminal prosecution and taxation. Finally, the communication lacks ambition in consumer protection, e.g. when it comes to reducing the high costs of credit cards in European payment transactions.
Fun quotes of the leak (insider jokes):
‘The Commission invites the co-legislators to agree on an ambitious outcome in the crisis management and deposit insurance framework negotiations and stands ready to provide its full support in this process.’
‘The Savings and Investments Union should also be better integrated into the European Semester Semester process, where progress by Member States, individually and coordinated, will be regularly assessed. Actions that are instrumental to deliver the Savings and Investments Union may be further reflected in Country Specific Recommendations, thus incentivising Member States to deliver.’
The leak of the communication:
https://table.media/wp-content/uploads/2025/03/07150728/2025_Draft_Savings-and-Investments-Union.pdf