National authorities are putting the brakes on ESMA, and Europe remains fragmented

What happened at the meeting of the European Council of Finance Ministers on 9 October is a good illustration of how and why Europe has so far failed to establish itself as a global economic power on a par with the United States and China.

The discussion centred on the integration of the European financial market, with a view to supporting business growth and financing the investments the continent needs in sectors such as artificial intelligence, the climate transition, defence and infrastructure, as well as to better protect Europeans’ savings. The need for greater integration had been highlighted in the Letta and Draghi reports and reiterated on various occasions by the European Council. Ministers from the six leading countries had recently sent a letter to the European Commission calling for concrete proposals.

The Commission has put forward a series of measures for discussion, concerning in particular the strengthening of the European supervisory authority, ESMA, to the helm of which the Italian Carlo Comporti has, incidentally, been appointed. This strengthening is necessary to prevent divergent interpretations of European legislation by the various national authorities, which have in the past contributed to market fragmentation.

When the Commission’s proposal was discussed at the meeting of ministers and technical experts, a battle ensued to water it down. The aim was to safeguard the residual powers of national authorities (the equivalents of Consob in the various countries). The aim – which is not all that veiled – is to try to give an advantage to their own markets and national operators, at the expense of others. The excuse is that national specificities and competences must be maintained, particularly for infrastructure that does not have a pan-European dimension.

The European Commission’s initial proposal is thus watered down. In this specific case, the number of securities trading platforms transferred to ESMA’s supervision is reduced from twelve to eight, with the notable exclusions of the German and Spanish stock exchanges; clearing platforms fall from nine to six, and securities depositories from fifteen to thirteen. In short, the scope of the European supervisory authority is drastically reduced.

As if exclusion from the European system conferred some sort of privilege. The experience of the Banking Union shows, rather, that those who remain outside European supervision – such as the German savings banks – are ultimately penalised. Deutsche Börse, and the companies listed on it, will derive no benefit from remaining under the supervision of the local supervisory authority in the state of Hesse and the German Consob. Quite the contrary.

How can we explain what happened? Although there was a broad political agreement, at the level of heads of government, on the objective of creating a more integrated European financial market, when the matter moved to the negotiating table between technical representatives, the instinct for self-preservation prevailed, aimed at safeguarding the powers of national bureaucracies. As the English saying goes: ‘Turkeys don’t vote for Christmas’. In other words, if the decision to transfer powers is left to those whose powers are being curtailed, ultimately nothing gets decided. Nobody wants to give up what little power they have, not even national regulators. And so they do everything they can to throw a spanner in the works at European level.

This is just one example of how difficult it is to build a stronger Europe when power is handed over to those who stand to lose personally from such a decision, to the detriment of the public interest.

Nothing new. The euro would never have come about if the decision had been left to the central banks of the member states, each clinging to the power to mint its own currency. It took the vision and determination of the heads of government at the time – from Helmut Kohl to François Mitterrand, from Giulio Andreotti to Felipe González – who, at the European Council in Rome in October 1990, overcame their differences and managed to isolate Thatcher, who was opposed to the move. Such determination and courage are in short supply amongst European leaders today. And yet, more than a quarter of a century after the launch of Economic and Monetary Union, the overwhelming majority of citizens believe that the euro has been a success. Nobody wants to go back to the old currencies – not even the Germans to the mark.

The result of European inaction benefits no one. On the contrary, in a global competitive environment, financial fragmentation not only prevents European companies from growing, but also drives them to relocate and list their shares across the Atlantic, on Wall Street. The management of European assets is now largely outsourced to major US financial groups, which navigate the various European markets with ease, according to criteria and objectives set across the Atlantic. If Europe is slow to act, the blame lies with the short-sightedness of the Member States. And with those who govern them.