VIDEO | The numbers don’t lie; Europe is falling behind. After the financial crisis in 2008, the US and EU’s GDP were on par at just below USD15 trillion. Now, the US has doubled its GDP to almost 30 trillion, while the EU remains at 19 trillion. On stage for his session titled, “Time for change in the European capital market infrastructure” at the PostTrade 360° Nordic 2024 conference, Pierre Davoust, head of central securities depositories at Euronext shared those numbers in his call for market participants to play a more active role in securing Europe’s prosperity over the long term.

“Europe absolutely needs to bridge the productiviy gap with the US in order to lead growth,” said Davoust, quoting Erik Thedéen, the governor of Sweden’s central bank, Riksbanken. “To boost productivity, we need to boost investments. To boost investments, we need to have better capital markets,” he said.

According to Davoust, Europe already has the fuel needed to build better capital markets: €35 trillion in savings. What the region lacks is an efficient way to channel those savings towards “the right equity investments” – and this is where the capital markets union (CMU) comes in.

He described the CMU as “crucial” to allow Europe to stay prosperous and relevant over the long term, and to “maintain a strategic autonomy” in a world where many competing economies, such as China, the US, and India are growing fast and vying to exert their influence.

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Taking initiative

Building the CMU is a matter in which the industry could stand to play a more active role. “I think it’s very important for me to insist on the fact that as an industry, we have the leading role to play,” said Davoust. More than waiting for a top-down decision from policymakers, “CMU is an industry project, first and foremost”.

He outlined a few initiatives Euronext has taken to foster efficiency in the market, including integrating the exchanges it operates in seven countries on a single platform, and consolidating all its equity derivatives clearing flows into one CCP, Euronext Clearing in Italy.

As for CSD consolidation, Davoust believes that the ideal is not to have one, but “two or three large CSDs that can compete with each other”. Having just one CSD would be “a de facto monopoly” that doesn’t give the benefits of competition. Having a few “would be the best outcome for Europe because then you have both the effects of consolidation, and some competition,” he explained.

A matter of policy

“It’s important that as an industry, we recognise that we have a primary role to play in shaping the CMU by making investments that are relevant for its purpose.” Nevertheless, he acknowledged that “there is a limit to what we can achieve without the help of policymakers”.

Davoust identified two areas of policy change that could effect progress – the tax regime, and supervision structure. Tax incentives in many countries in Europe tend to favour investments in fixed income assets, he claimed, instead of equity investments. “We should channel more of the savings – the fuel we have – into our own entrepreneurs, companies, and businesses,” he said. Secondly, “we need to have a single supervision, that is very clear”. The objective would be “to allow market participants to benefit from a much more integrated offering”.

Speaker:
Pierre Davoust, Head of Central Securities Depositories & Member of the Executive Committee, Euronext

• The consolidated PostTrade 360° Nordic conference, in Stockholm on 4–5 September 2024, came to host 1,200+ delegates and featured 70 sessions.
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