New rules for the financial market
Brussels wants to significantly boost investment flows
April 18, 2024, 10:06 p.m
Companies like to invest in China or the USA because they enjoy the advantages of a unified financial market there. EU leaders are now looking for ways to strengthen the internal market. You want to remain competitive. But there is controversy when it comes to taxes.
In order to keep up economically with the USA and China, the EU wants to make better use of the size of its internal market. The internal market has “far from exhausted its potential and possibilities,” said Chancellor Olaf Scholz after a summit meeting of EU heads of state and government in Brussels. More uniform rules for the financial market across the EU are intended to enable greater investments for companies, but a number of smaller member states prevented a declaration of tax system harmonization.
Scholz believes further progress in the convergence of the European capital markets is possible. “The insufficiently developed capital market in Europe is probably the main reason why the growth dynamic in Europe is not as great as it is in some other places in the world,” said the SPD politician after the top meeting. He referred to the USA as an example. “I believe that we will now finally see progress in this field.”
“At the European level there is a gigantic financial volume” that needs to be used with a view to climate change, digitalization and geopolitical crises, said EU Council President Charles Michel. In the EU, “an additional 470 billion euros per year in financial resources could be generated via the capital markets,” explained Commission President Ursula von der Leyen.
The European financial market is “too fragmented and not attractive enough,” said former Italian Prime Minister Enrico Letta. In Brussels he presented a report on the competitiveness of the EU, which he had prepared on behalf of the member states.
“Broad concerns” about standardizing tax law
The heads of state and government spoke out in favor of harmonizing corporate insolvency laws across the EU. However, a similar declaration of intent to unify corporate tax law was removed from the final conclusions at the insistence of smaller member states such as Estonia, Ireland and Luxembourg.
“As a small country, we don’t have many competitive advantages,” said Estonian Prime Minister Kaja Kallas. But one is a “very competitive tax system” that the EU cannot “take away” from Estonia. Ireland’s Prime Minister Simon Harris also emphasized that there are “broad concerns” about standardizing tax law for companies. The financial market reform is intended to ensure greater private and public investment in the EU. To date, different rules for taxation and corporate insolvency law apply in the 27 EU countries. Investing across borders is therefore often complicated.
The smaller EU states also fear that this will result in even more extensive government aid for companies in large countries such as Germany and France. “The race for subsidies, in which states pay subsidies and we compete with each other, is harmful to competitiveness,” said Kallas. Centralizing the monitoring of financial markets at the European supervisory authority ESMA based in Paris, as proposed by France, also sparked discussions among state leaders. Luxembourg’s head of government, Luc Frieden, warned that the EU should not “over-bureaucratize, over-regulate and over-centralize everything.”
The EU economy grew only slightly
In their summit declaration, the heads of state and government spoke out in favor of strengthening ESMA’s capacities “taking into account the interests of all member states”. The declared goal is to align financial market supervision in the long term and make it more efficient.
In addition to the financial market, the EU states spoke out in favor of uniform rules in the energy and telecommunications sectors. There have been obstacles for companies in these markets “for years,” explained Letta when presenting his report. “We don’t have time to waste,” warned the Italian, with a view to competition with the USA and China.
Last year, the economy in the EU only grew slightly by 0.5 percent, while in the USA it was 2.5 percent. The EU fears above all that it will be left behind in technologies such as wind and solar energy, batteries, semiconductors and artificial intelligence.