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What’s Next for Europe’s Capital Markets?

Without the UK, even integrated EU capital markets would be too small to meet the funding needs of European businesses. That is why global engagement, even at the cost of losing regulatory control, is critical.

LONDON – When the United Kingdom eventually leaves the European Union – assuming it does – it will take Europe’s biggest capital market with it. The loss of the City of London could drive the EU’s 27 remaining members to pursue an inward-looking strategy for managing their capital markets. But, as we argue in a new policy brief for the Centre for European Reform, the EU27 would be far better off keeping those markets open to – and, indeed, integrated with – London and the rest of the world.

Greater capital market openness has been on the EU’s agenda for some time. Since 2014 – well before the Brexit vote – the EU has been aiming to build more integrated markets for cross-border investment within the bloc. But the creation of a capital markets union (CMU) requires politically tricky policy changes in a wide range of areas, including taxation, insolvency regimes, and financial regulation. As a result, progress has been slow.

Without the City of London, the EU can probably forget about creating a capital market that could compete with New York or Tokyo. But that does not mean it should abandon its ambition to build a CMU. After all, the fundamental issues that such a union is supposed to address endure.

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