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Spain has proposed a faster path to closer EU financial integration among like-minded nations in an effort to end a decade-long stalemate over harmonising the bloc’s capital and credit markets.
Madrid made a formal proposal on Monday for a new mechanism to allow a vanguard of three or more countries to proceed on joint initiatives even when other EU members are wary — starting with the creation of a pan-European credit rating system.
For more than a decade, the EU has sought to tear down national barriers in capital markets to help European companies raise funds, but the efforts to forge a “capital markets union” have been scuppered by resistance from several capitals.
Spain’s move comes after policy recommendations from former Italian prime ministers Mario Draghi and Enrico Letta, who warned that the bloc risked economic decline if it could not turn its private savings into productive investments.
Carlos Cuerpo, the Spanish economy minister who will present the country’s proposal to fellow EU ministers in Luxembourg, told the Financial Times that implementing the Italian recommendations was “a huge job ahead for all of us”.
Setting out Spain’s proposal for a “competitiveness lab”, where three or more EU countries could test ideas for co-operation, he said it would help avoid the “potential danger of frustration” with the EU’s slow decision making. “We can’t wait that length of time,” he said, noting that on average the bloc’s legislation took 19 months to pass.
Spain wants to start with a harmonised credit rating system for small and medium-sized businesses, which he said found it much harder to raise finance than large companies.
Describing the idea as “an additional step towards a capital markets union”, he said it would lower financing costs in both capital and credit markets and enable a Spanish company, for example, to raise funds at competitive rates in any other participating country.
It is not the first time EU countries that are frustrated by inertia in the EU regulatory process have tried to push ahead with fewer partners.
EU law already allows for “enhanced co-operation” among at least nine member states on specific initiatives if efforts to secure support for the reforms at EU level have failed.
But the mechanism has only been used successfully four times, and failed to break a stalemate on a financial transaction tax, even after it was explored by more than a dozen countries. Spanish officials described it as outdated and insufficiently flexible to enable real change in key areas.
Paschal Donohoe, president of the Eurogroup, said on Monday that the Spanish initiative should encourage all countries to participate, but would avoid fragmenting the bloc’s already disjointed capital markets.
“At a time when we’re all reaffirming the value of a single market and the value of a level playing field . . . I hope that ideas like this act as a catalyst to deepening our commitment for us all to take a step forward together, so we don’t have any risks of fragmentation,” he said, adding: “One person’s enhanced co-operation could be another country’s risk of fragmentation.”
A recent French proposal backed by Italy, Spain, Poland and the Netherlands to forge ahead with a capital markets union ran aground.
France said its proposal, which included centralising the supervision of banks and asset managers in the Paris-based EU agency European Securities and Markets Authority, would enable greater capital integration.
But the idea was opposed by a majority of smaller member states, which were wary of losing the right to set their own rules and sceptical of French attempts at centralising power.
Cuerpo said Spain’s proposal was an effort to move beyond “ad hoc” efforts and would enable other countries to test their own ideas for closer integration in areas ranging from securitisation to tax harmonisation. He said feedback from other member states on the idea so far was “rather positive”, but did not name any guaranteed allies.
“What we are trying to do is put on the table a fully fledged framework that can accommodate different initiatives,” he said. “It’s not just us pushing for one specific initiative or concept, it’s us proposing a catalyst for broader co-operation, which is open at any time for anyone to be brought in.”
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