On March 19, 2025, the European Commission unveiled its long-anticipated communication on establishing a "Savings and Investments Union" (SIU), marking a potential turning point in the European Union’s ongoing efforts to deepen and unify its capital markets. This process began in 2014 with the Capital Markets Union (CMU) initiative, designed to complement the Banking Union, which was implemented in response to the financial and sovereign debt crises of the previous decade.
While the Banking Union led to concrete outcomes—such as a unified supervisory framework and resolution mechanisms—the CMU has mainly remained conceptual. Even after Brexit, which removed London as a financial heavyweight from the EU, political will remained insufficient to drive full implementation of the CMU.
Geopolitical developments, such as high economic uncertainty and economic decoupling, add new urgency to the fundamental undertaking of integrating European financial markets and have left European policymakers wondering about the most likely policies to achieve this goal. This contribution partially reflects discussions at an ESM SUERF-Bruegel workshop on European preparedness earlier this month.
Equity, not debt: A welcome shift in focus
The Commission’s latest communication correctly emphasizes the need to mobilize equity capital rather than debt. This is essential for financing the EU’s economic transformation, yet significant barriers remain. Chief among them is the preferential tax treatment of debt over equity—an imbalance the Commission suggests must be addressed through national tax reforms. However, taxation remains under the control of individual member states and coordination here will be challenging.
The Commission also proposes several initiatives to unlock private savings—especially those held in low-yielding deposit accounts—and strengthen old-age savings. While important, these proposals face severe limitations. Member states have vastly different pension systems, which rely on pay-as-you-go rather than funded models. Before new savings products can be introduced at scale, foundational reforms are needed to expand funded pension schemes across the EU. Here, too, member states are in the driving seat.
A more promising avenue: Institutional investment and securitization
A more promising and immediate path may lie in encouraging institutional investments in private equity and alternative asset classes. To this end, the Commission plans to publish a proposal in the second quarter of 2025 to revise the EU’s securitization framework—particularly for Simple, Transparent, and Standardized (STS) securitizations. Looking at the regulation, in particular disclosure requirements, as well as the cumbersome supervisory process, streamlining and standardizing will ease the burden for the industry. Reducing administrative burdens without compromising prudential standards will be key. Simplification should not come at the cost of artificially low capital requirements, a long-voiced concern by regulators.
Toward a unified market: Tackling regulatory fragmentation
Regulatory fragmentation remains a major hurdle in private equity and venture capital. National differences in tax law, corporate governance, and insolvency regimes continue to discourage cross-border investments. If the SIU is to succeed, member states must take the lead in aligning these frameworks—or at least work toward greater compatibility.
The Commission also addresses listing and secondary market trading, but the proposals remain vague. The EU's capital markets are still fragmented along national lines with about 20 independent stock exchanges, unlike the concentrated structures in the US and UK, where liquidity is pooled across far fewer exchanges. Euronext and Nasdaq Nordics are notable examples for market-driven integration, however. Market infrastructure depends heavily on scale, and fragmentation hinders efficiency and competitiveness.
The Commission should consider creating a centralized European supervisory authority for capital markets—similar in scope to the U.S. Securities and Exchange Commission, allowing companies to use a single data set across all EU exchanges and foster a unified regulatory and supervisory environment. Market forces could then determine where transactions are executed within a common supervisory and regulatory framework. Hopefully, market forces would then lead to concentration by creating competitive entities.
Regulatory architecture: Time for reform?
The European Supervisory Authorities (ESAs) were designed for regulatory “support,” not direct supervision. These two functions seem inconsistent. If a centralized European oversight body for capital markets is to be created, it should either be integrated with the existing banking supervisor (since most large institutions already hold banking licenses) or as suggested above take the form of a European version of the U.S. Securities and Exchange Commission.
Key priorities for 2025
As the Commission consults on the integration of capital markets to accelerate progress toward a unified European capital market, it should focus on three key initiatives in the months ahead:
- Simplify and standardize securitization rules, especially for STS structures.
- Improve the regulatory environment for institutional investments in private equity and venture capital—with clear expectations for national-level reforms.
- Establish a European capital markets supervisor and – of course - complete the Banking Union.
Market consolidation cannot be mandated, but harmonized rules and centralized supervision may naturally foster it. Though the idea of a “28th regime” for company law remains tempting, developments in the bond market suggest market participants are already gravitating toward commonly used legal frameworks. The market may lead the way—if the regulatory path is clear.
Elke König is Senior Fellow at the SAFE Policy Center.
Blog entries represent the authors‘ personal opinion and do not necessarily reflect the views of the Leibniz Institute for Financial Research SAFE or its staff.
