European Union leaders on Thursday agreed to align "relevant aspects" of their countries' insolvency laws for companies, as part of broader efforts to integrate capital markets and make the bloc more competitive.
EU leaders’ agreed to a declaration that commits to “harmonizing relevant aspects of national corporate insolvency frameworks,” among other measures to further integrate capital markets.
The EU is struggling to compete with the United States and China, and commissioned former Italian prime minister Enrico Letta to come up with a plan.
Letta's 146-page report formed the basis of Thursday’s discussions, which paid particular attention to ways of integrating EU capital markets.
Leaders also discussed the possibility of more EU-level supervision of capital markets, though several member states are anxious to retain the role of their national financial authorities.
“The economic case for a Capital Markets Union is crystal clear,” European Commission President Ursula von der Leyen told reporters on Thursday. “Every year, €300 billion [$319 billion] of European savings are diverted abroad, mainly to the United States."
"That is money missing for the development of our companies in the European Union. This is due to the fragmentation of our capital markets and finance system,” she said.
Von der Leyen was echoing Letta’s argument that unifying capital markets would help the bloc as it urgently seeks new sources of investment to fund defence spending and economic reforms to reduce carbon emissions.
Citing European Central Bank (ECB) President Christine Lagarde, von der Leyen said that unifying EU capital markets would allow European companies to raise an additional €470 billion in financing per year.
The fragmentation of capital markets “might be the main reason for seeing lower growth rates in Europe than in other places in the world - for example, the US,” German Chancellor Olaf Scholz said.
The declaration EU leaders agreed on Thursday makes a firm commitment to harmonize insolvency law, but its provisions are much vaguer on more controversial aspects of capital markets integration, such as supervision.
The details are currently being “negotiated by experts,” Scholz said. “It really needs to be put on on top of the political agenda, and after the European elections, we need to see real progress,” the German chancellor said. Elections to the European Parliament are due to be held on June 6-9.
Letta's report said that €33 trillion worth of savings held in the EU could be better invested.
Letta also called for national state aid subsidies for domestic companies to be redirected to benefit the EU single market as whole.
Additionally, he wants better integration of national transport systems.
Letta noted that when he was travelling to compile the report, high-speed rail worked well internally within EU countries but did not connect EU capitals.
