Summary:On February 18, 2015, the European Commission released a draft proposal for a Capital Markets Union (CMU) to complement its current efforts to create a Banking Union. The CMU is intended to strengthen capital markets in the 28-member European Union (EU) in order to provide a viable alternative to the current bank-centered funding model commonly used by European firms. The Banking Union is distinct from the CMU because it is intended to break the link between private bank failures and government debts; it also is intended to provide stability to the financial system in ways that will support the CMU. The 2008-2009 financial crisis and the European sovereign debt crisis of 2010-2012 continue to hamper prospects for economic recovery in Europe; new investments by European firms continue to lag behind the levels reached prior to the financial crisis and bank lending to firms remains sluggish. Currently, EU financial markets are characterized by a lack of standardization in important financial products and resistance at the national level to ceding sovereignty over domestic financial institutions to the EU. While some of these impediments may be overcome by the measures envisioned in the CMU, others likely will continue to fragment EU financial markets for some time to come.
