European Capital Markets

Market integration, in turn, leverages the potential of market development initiatives and enhances market depth. Research suggests that deeper equity markets are more effective in bringing economies closer to the technological frontier, as well as in "greening" the local economy.

On the retail side, the creation of a pan-European personal pension product would go a long way towards integrating local capital markets and overcoming prevailing home biases. Unfortunately, the initial proposal was watered down and the tax treatment has been fully left to the national authorities' discretion. Renewed impetus here is vital.

Pension reforms that strengthen private retirement savings, and also contribute to the diversification of such savings into equity, would support the process. In 2017, EU households held just 21% of their financial assets in shares and equity, compared with 41% in the United States.

A second important lever for integration and diversification is to build on the newly adopted European covered bonds directive and to increase efforts to revive the European securitisation market, in particular SME securitisation. SME deals only accounted for around 8% of overall securitisation in 2016.

Early on, the ECB and the Bank of England have called for a revitalisation of the European securitisation market, addressing the flaws evidenced by the crisis. The new European Securitisation Regulation entered into force at the start of this year. We have already seen it bearing fruit, as simple, transparent and standardised securitisations have started to pick up, with 16 such transactions published on ESMA's central register between late March and early June.

The development of covered bond-like structures backed by SME loans, such as the European Secured Notes, could complement efforts to open up new financing sources for SMEs.