In December 2025, the European Commission published a core proposal to establish a European Savings and Investments Union (SIU): the market integration package. It is intended to enhance capital market integration and supervision of financial market infrastructure within the European Union (EU). It is undisputed that European financial markets need further integration to overcome the historic fragmentation. Only integrated European markets will provide the necessary depth and liquidity needed to fund the European economy and cope with the current geoeconomic challenges. Thus, there is broad support for the project’s aims.
Simplification does not mean deregulation
At the same time, it is also undisputed that financial regulation has become overly complex in recent years. There exists a web or rather a maze of European directives and regulations, there is level 1, level 2 and ever-expanding level 3 regulation, and there are still multiple national options and discretions (OD) as well as areas of national law. Thus, the call for simplification, not to be misunderstood as deregulation (see EBI-Simplification-Report).
Both topics need to be considered together, otherwise we risk - once more and well-intended – to add an additional layer of regulation, instead of unleashing the full potential of Europe’s capital markets.
Incremental steps cannot overcome structural barriers
The SIU reframes the Capital Markets Union (CMU) as a broader project that links integrated markets, household savings, and long-term investment capacity. The market-integration package rightly positions SIU as the central initiative to remove remaining barriers and unlock a genuine pan-European savings and investment space.
Yet, many of the structural levers that matter most for SIU sit outside EU competences: corporate law, taxation, insolvency frameworks, and key elements of pension systems are subject to national decision-making – and this will not change in the foreseeable future. This creates a persistent risk that SIU results in a sequence of incremental measures which would leave the underlying fragmentation of legal regimes and investor incentives intact. This is what happened to the Commission action plans on CMU from 2015 and 2020, respectively. Almost all bullet points were checked, but market integration did not improve. Or to put it straight: Are we putting the carriage in front of the horse?
How far can ESMA’s powers extend?
Experience with the Banking Union shows that centralized supervision materially improved supervisory convergence and added to financial stability, but it did not by itself eliminate market fragmentation in banking. In capital markets and other relevant areas, the Commission’s package now proposes a stronger central supervisory role for the European Securities and Markets Authority (ESMA), in particular extended direct-supervisory powers over selected cross-border and systemically relevant actors. The separation of competences between ESMA and national supervisory authorities would resemble that of the Single Supervisory Mechanism (SSM) for significant institutions and national authorities for smaller banks, while the proposed governance reform builds on the experience with the Anti-Money Laundering Authority (AMLA).
Several tensions emerge:
- First, without clear re-allocation of tasks away from national authorities, there is a real risk that ESMA becomes an additional layer rather than a consolidating hub, adding complexity instead of reducing it.
- Second, ESMA already combines an (ever expanding) rule-making, coordination, and direct-supervisory role. Reconciling the necessary independent board for supervision with ESMA’s DNA as a consensus-driven regulatory body will be institutionally demanding. Separating both might be in the interest of transparency and accountability.
- Finally, any move towards a more centralized capital-markets supervisor (here ESMA) must confront the “Meroni-constraints”, which do not allow agencies to be granted far-reaching discretionary powers (see CJEU landmark case Commission v Single Resolution Board). The ECB is not subject to these restrictions, as it operates as an EU institution under the Treaties.
The debate therefore needs to move beyond a binary “more or less ESMA” discussion (let alone a discussion simply about locations!) to a debate about which activities truly require EU scale and supervision, how to scale back national mandates in parallel (see also SAFE Finance Blog, by Florian Heider and Vincent Lindner), and what governance model will best preserve supervisory independence, transparency, and democratic control.
Pension and savings systems have a major impact on capital markets
The Commission rightly underlines that the demand for financial services - and thus the depth and liquidity of EU markets – is heavily shaped by national pension and savings systems. In member states like Sweden, with sizeable market funded pension pillars, long-term institutional investors provide a natural “anchor” for equity and bond markets, while in predominantly “pay-as-you-go systems”, like Germany, retail portfolios are frequently bank-deposit heavy and domestically focused.
As the design of pension systems is an area of entirely national competence, the Commission can only try to persuade member states to address the topic and stress positive examples via the European Semester process. The current debate about the sustainability of existing pension systems in multiple member states should be seen as an opportunity to make progress.
Will 2026 be different?
Europe has been built in incremental measures but also took giant steps in times of crisis. The Banking Union is a clear example. Looking at the current geopolitical challenges that seem to escalate every day, Europe clearly needs a giant step to activate the full potential of its capital markets. This requires a carefully sequenced interplay between European Commission initiatives and member state action, recognizing that many if not most structural levers lie outside direct EU competences. But without scaling back of national competences or at least harmonization at national level, the SIU risks getting stuck, adding to complexity instead of delivering a European capital market.
This might result in a broader project that combines at least
- at Commission level the necessary steps for simplification – aligning definitions and taxonomy, reporting rationalization, restoring the hierarchy of legislation etc. – with a reconsideration of the supervisory architecture to avoid overburdening regulatory agencies with supervisory functions;
- at member state level relevant reforms – in particular of the pension systems as well as certain areas of tax and insolvency laws – ideally moderated by the Commission, the Eurogroup and ECOFIN;
- last, but not least, a joint review and OD reduction after having achieved baseline convergence.
The Commission via the European Semester, but also ECOFIN and Eurogroup must push for progress at European, but in particular national level to make SIU a success. More Europe, not less, is needed.
Elke König is SAFE Senior Fellow and former Chair of the Single Resolution Board.
Blog entries represent the authors’ personal opinion and do not necessarily reflect the views of the Leibniz Institute SAFE or its staff.
