Notes on the German EU Presidency

A German EU presidency is no normal presidency. In Brussels, and across Europe, expectations are always high. That’s certainly the case this time around; a lot is riding on the ability and experience of the German machine to steer the EU into calmer waters.

At CFA Institute, we don’t want to add to the burdens of our German friends by setting out dozens of demands and recommendations. Rather, we hope the following thoughts on priorities are a useful contribution at a time when the EU’s economic and financial response to the COVID-19 crisis has been under intense scrutiny.

Above all other priorities, the EU’s Capital Markets Union (CMU) is an area we think requires a real injection of political commitment to refocus it and drive it forward. The Berlin-led presidency faces a real challenge to do this and to embed the CMU as part of Europe’s overall COVID-19 response.

Following are our thoughts:

• This time, a top-down approach is not enough: The measures needed for the recovery of the financial systems must be subscribed to at the EU and at national levels. To date, large-scale moves towards a harmonizing market have always been driven top-down. Markets are local and the stimulus will be local, and thus creating clusters of best practice or similar market practices will help. CFA® Societies and CFA Institute stand ready to discuss best practices with policymakers and the German EU presidency to ensure that the right mix of practical experience is fed in and taken on board.

• Beware of a debt-loaded economy: Small and midsize firms are rightly the prime focus for an EU recovery, but there’s still an urgent need to bridge access to finance and avoid a debt-driven recovery. For us, this points to the importance of re-equitizing the economy. Building an equity culture should be top of the agenda for all supervisors and policymakers in the EU – and we hope the German presidency can push this agenda forward. Our recent work with the Federation of European Securities Exchanges, European Bank for Reconstruction and Development, and Accountancy Europe (see here and here) provides much evidence. This issue not only calls for better equal tax treatment between debt and equity, but also for stimulating cross-border interest, building better knowledge of equity investment, and probing the price malformation investment research.

• A time for partnership but not for lowering standards: The challenging environment is leading some to call for a relaxation of regulatory regimes as a means to fire up markets — the ink on the Markets in Financial Instruments Directive (MiFID) consultation is not even dry and some are already calling for a quick fix to give financial firms and investors a helping hand. Rather than a lighter regime, CFA Institute (in our recent survey of members) favored a partnership between supervisors and firms to enable a more agile response. MiFID does need to be tweaked but not unwound. Investors need certainty and transparency.

• Investor protection is more important than ever: Unfortunately, COVID-19 has seen an increase in cases of mis-selling, and so protection for consumers should be moved to the forefront. CFA Institute — with its codes, standards, and ethics as part of our DNA — is keen to contribute to a refocusing on business conduct to help investors feel more secure.

• Sustainability is here to stay: While all are aligned with the overall imperative of sustainability, the challenge is how best to incorporate the extra information required when companies are facing survival. This will require close collaboration among policymakers, supervisors, and stakeholders.

Image Credit @ Getty Images/ Daniel Day