Prepare for interventionism in capital markets
European policymakers may decide to ramp up efforts to retain control of capital markets, amid rising Brexit tensions, the US-China dispute and the need to recover economic growth.
Politicians across Europe have sought to react to the coronavirus crisis with greater direct intervention in the economy, whether through recapitalising companies or seeking to “onshore” certain operations.
Another driver for this type of activity is the more fractious global trade environment, with the EU stuck in the middle between the US and China.
It may be sectors like aviation, fishing and technology in focus when we think of state aid and trade disputes now, but this could well extend to financial intermediaries too. At the least, there will probably be more pressure to support the domestic capital markets players.
For example, while financial services are not now a major sticking point in the freshly rancorous Brexit negotiations, European cities will be hoping the EU manages to prise business away from London.
Elsewhere, it felt like a sign of the times this week when former European Central Bank president Jean-Claude Trichet said that “Europe more than ever needs a strong and independent European rating agency,” when joining an honorary board at ratings agency Scope.
While Trichet has form criticising the big players, as the EU forges ahead on matters like sustainable finance, the attraction of credit analysis that is “Europeanised” is likely to grow. Perhaps at some point it will receive greater recognition from central banks and supervisors.
Meanwhile, small and medium-sized companies’ access to capital markets is on the agenda, not just because of the pandemic but also due to a fear that MiFID II has killed off the incentive to research these firms. Policymakers may decide to help local intermediaries connect firms and investors.
None of this means Europe’s capital markets will pull up the drawbridge to outsiders. But politicians might decide to give their compatriots more of a helping hand.