How can Europe’s economic integration be deepened and the Capital Markets Union created? What role does the European Single Market play in a globalised world economy? What measures can help leverage the potential of the Single Market and strengthen the EU’s competitiveness? These questions were discussed by Bundesbank President Joachim Nagel and former Italian Prime Minister Enrico Letta. Letta wrote a report, at the behest of the European Commission and the European Council, on the future of the European Single Market and presented it to the EU Heads of State and Government in April. 

The Leibniz Institute for Financial Research SAFE organised a panel discussion entitled “Empowering the Single Market – Opportunities and challenges” in Frankfurt am Main.

Nagel in favour of Capital Markets Union

In his introductory statement, Nagel stressed that he had been advocating for the Capital Markets Union (CMU) for many years. Progress in this area, however, had been very slow. One important reason why the CMU had not yet been achieved, according to Nagel, was the fact that there was not just one measure that would result in a single European capital market, but that a whole package of measures was needed. In addition, those measures would, in some cases, have a strong impact on national law. However, as Europe’s leaders were increasingly recognising the relevance of the topic, Nagel was convinced that progress would soon be made. 

Nagel sceptical about renewed EU joint borrowing 

On the role of governments in strengthening the Single Market, Nagel said that setting good framework conditions was the best thing governments could do. He added that he did not see much merit in setting fiscal incentives through subsidies and state aid. 

In Joachim Nagel’s view, EU joint borrowing, such as for the European reconstruction programme to overcome the COVID-19 crisis, should remain a one-off exception. The Bundesbank is sceptical about extending the scope of joint borrowing beyond the NextGenerationEU programme. “While that programme was certainly an expression of solidarity during the pandemic, its results so far have been rather mixed,” the Bundesbank President said. The European Court of Auditors, for instance, had expressed serious doubts about the efficiency and growth-enhancing effects of grants and loans. The programme was an understandable response to the pandemic emergency, Nagel said. “But given the current level of integration, it should remain a one-off exception to the rule that the EU must not borrow money.” Nagel did not consider common debt necessary for defence purposes, either. “Higher defence spending is entirely possible within the usual budgetary process,” he added. At the same time, however, there was no denying, in his assessment, that the EU was currently facing major geopolitical challenges and needed to become more robust. In his statement, Nagel stressed that strengthening the Single Market was an important contribution to increasing the resilience of the EU. 

Joachim Nagel and Enrico Letta subsequently discussed ways of strengthening the Single Market. The panel was moderated by Cécile Boutelet, economics correspondent for the French daily newspaper “Le Monde”.