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Some thoughts on the Euromoney CMU conference

10 December 2015
Richard Kemmish

I came away from the Euromoney CMU conference in Brussels last week thinking that the objectives that Commission has set itself are an interesting combination of the extremely easy, the practically impossible and a very small number falling in between the two.

Many of the barriers to the free flow of money into the capital market seem on the face of it easy to dismantle, as was discussed on one of my panels. Why on earth does an investment fund need a paying agent in every member state that it markets in (I’m pretty sure the better paying agents can make payments in more than one country)?  Must retail product marketing documents really be translated into every language of the union? Sorry Welsh speakers but if you can’t also speak one of German, French, English or Italian, then don’t buy the bonds. How difficult would a common EU-wide form for tax reporting be? That doesn’t rely on tax rules being harmonised, just reporting processes.

Which does beg the question of why these barriers haven’t been dismantled already? The free movement of capital was one of the founding principles of the treaty of Rome (signed in 1957, so we’ve had 58 years to do something about it).

Adoption of best practice from Member states would be another easy win. On the pensions panel for example, it was pointed out that pillar 2 pensions have a far better take up in those countries where opting-in is the ‘default setting’. Other member states please note and change your (national) laws accordingly.  

On the other hand there are many objectives of CMU which seem to me practically impossible. Good luck trying to agree a harmonised insolvency regime or fiscal code without a change to the balance between national and EU competencies. That would require fairly fundamental treaty changes for which there clearly isn’t the political will currently.

A couple of topics that several panellists touched on though were firmly in the middle ground of ‘possible but not easy’: changing investment cultural and improving financial literacy.

Aspects of retail culture that were mentioned included risk aversion, preference for banks over capital markets and national parochialism. These are not necessarily irrational but are at odds with the objectives of CMU.

The research that was put out by many investment banks at the time of the Greek government debt restructuring, in particular that which asked if private sector investments would default if the government defaults, is a good starting point for anyone trying to find legal methods to reduce perceived cross-border investment risks.

Similarly, fiscal incentives to savings (such as ‘Livret A’ in France) can be at least equalised between the banking system and the capital markets.

How many people have any idea how much of their income they need to invest in pension funds? Very few, and mainly the home-owning middle class, not the target audience.
Thanks to all of the panellists involved. You raised some very interesting topics.

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