European Central Bank President Christine Lagarde on Friday, November 17 proposed the creation of a European equivalent to the U.S. Securities and Exchange Commission to advance the European Capital Markets Union (CMU). In a speech at the European Banking Congress, she urged a shift in Europe's financial strategy to address the continent's upcoming economic challenges.
Lagarde's address, titled "A Kantian Shift for the Capital Markets Union," drew parallels between the transformative role of railroads in 19th-century America and the current European situation. She stressed the necessity of a unified approach to finance Europe's future, especially in light of deglobalisation, demographic changes, and the urgency of decarbonisation.
According to Lagarde, a unified capital markets union is essential to finance large-scale economic transformations. She observed that Europe's fragmented financial markets are currently inadequate for this task. The ECB President noted that progress towards a CMU has been hampered by the absence of a unifying project and an over-reliance on a bottom-up approach to integration.
Lagarde advocated for a "Kantian shift," a top-down approach to reinvigorate the CMU, inspired by the philosophy of Immanuel Kant. She proposed establishing a European regulatory body similar to the SEC, potentially by expanding the powers of the European Securities and Markets Authority (ESMA). This new entity would standardize regulations and supervision across national borders, reducing systemic risks and promoting financial integration.
The ECB chief also highlighted the need for a single regulatory framework for the banking sector, drawing lessons from the post-global financial crisis era. She suggested that a unified regulatory framework would create a level playing field for banks and facilitate deeper financial integration within the EU.
Lagarde called on the private sector to support the CMU's development, especially in establishing consolidated market infrastructures, like a European consolidated tape, to enhance cross-border market activities.
In her concluding remarks, Lagarde emphasized the urgency of the situation and called for bold action from European policymakers, banks, and investors to tackle imminent challenges. Her proposal, if realized, could mark a crucial step in European financial integration, potentially impacting the continent's economic resilience and growth for years to come.