Germany drops opposition to greater EU securities supervision
Finance minister signals end of Berlin’s reluctance to completing Europe’s capital markets union
The German government has signalled openness to handing over more powers to a European financial regulator, in a significant shift that would remove one of the biggest obstacles to unifying the bloc’s capital markets.
Germany’s long-standing reluctance to transferring financial supervision from the Bonn-based BaFin to the European Securities and Markets Authority (Esma), which is headquartered in Paris, has been a major stumbling block to progress on the EU’s capital markets union (CMU). The initiative is one of the priorities identified by former Italian prime minister Mario Draghi in his recent report about how Europe can regain its competitive edge against global rivals like China and the US.
German finance minister Lars Klingbeil has recently agreed to explore areas where centralised supervision is warranted, as part of Franco-German preparatory work to advance the CMU, according to three people with knowledge of the matter.
“The [German] minister has shifted,” one person said.
The discussions, aimed at forging a joint Franco-German position ahead of a meeting of EU leaders in December, cover equity trading exchanges, such as Deutsche Börse, and the asset management industry, said one of the people.
But they excluded cryptocurrency regulation at Berlin’s request, the person said.
Conservative Chancellor Friedrich Merz, who advised US asset manager BlackRock before returning to politics, is backing the joint effort, according to two people with knowledge of the situation. Merz, who is trying to revive Europe’s largest economy, has argued that deeper capital markets integration could help attract foreign investments and boost growth.
The European Commission has touted moving supervision of selected entities such as central counterparties, central securities depositories, trading venues, as well as crypto exchanges, to Esma, with a proposal due later this year. Esma chair Verena Ross this week told the Financial Times that doing so would lead to “having a capital market in Europe that is more integrated and globally competitive”.
“If the largest member state changes its position it is a game-changer,” said a senior EU official.
Talks between Klingbeil and his then French counterpart Eric Lombard intensified over the summer, said two people. One of them described Lombard’s visit at Genshagen Castle, near Berlin, as the moment when Klingbeil agreed to speed up work on the CMU.
Supporters — including France — argued that unified EU oversight of systemic financial infrastructure, such as stock exchanges and central counterparties, would set consistent standards across the bloc, reduce market fragmentation and cut compliance costs for cross-border operators.
In his report last year, Draghi cited the CMU and the creation of a European securities regulator as one of the main levers of growth.
Paris has long pushed for greater centralisation and strengthening Esma. As part of a broader reset in Franco-German relations, Lombard, a former finance executive from the political centre left, sought to revive bilateral work on the issue, according to the people familiar with the discussions. He found a willing partner in Klingbeil, who belongs to the pro-business wing of Germany’s Social Democrats, two of the people said.
A spokesperson for the German finance minister said that “Germany aims to strengthen supervisory convergence”.
“We are working together with France on concrete answers on how we can improve supervision efficiency while avoiding creating new administrative burden,” they added.
Klingbeil has cited the CMU as a top priority. Speaking at the Hertie School in Berlin last month, he said: “The European capital market is still too fragmented. It is still too difficult for young companies in Europe to raise money. We can no longer afford this — I agree with my French colleague Eric Lombard on this.”
A few weeks later, he reiterated that the project was “one thing that can significantly contribute to the success of the European idea”. Klingbeil expressed his intention to do his part, so that start-ups on the continent no longer have to “go to the US” to scale up.
Guntram Wolff, a senior fellow at Bruegel, a Brussels-based think-tank, noted that it was “one thing to say this behind closed doors in Brussels”, but that it was quite “another to say it publicly to a national audience and risk paying a political price for it”.
“For years Germany has been paying lip service to the idea of a capital markets union, largely because of its powerful bank-based intermediation model and lack of capital markets tradition,” Wolff said. “If Berlin shifts on this, it would inject momentum.”
France’s political turmoil, however, could pose a new hurdle. Lombard was replaced last week by Roland Lescure, a member of President Emmanuel Macron’s centrist party. But French Prime Minister Sébastien Lecornu has since resigned, and Macron is expected to appoint a new premier on Friday, meaning Lescure may not stay on in his post.
Other countries, notably Luxembourg and Cyprus, are still opposed to more centralised supervision.
“More centralisation will not unlock additional funding for the EU economy and it will take time and also entail costs for businesses to implement a new institutional structure,” Gilles Roth, Luxembourg’s finance minister, said on Thursday.
Two of the people said Berlin and Paris were striving to avoid creating more bureaucracy and would push for concrete product initiatives to channel savings into European capital markets.
In July, Klingbeil and Lombard tasked Jörg Kukies, Klingbeil’s predecessor at the German finance ministry, and Christian Noyer, a former French central bank governor, with drafting proposals to boost start-up and scale-up financing across the EU.