Financial Policy in the new EP term: No transformation without savings mobilisation

Tine Feddersen, Deputy Managing Director of Hans Bellstedt Public Affairs (hbpa)

In Brussels and beyond, the general assumption is that if Europe fails to deepen capital markets and mobilise private savings it will be difficult to finance the gigantic transformation agenda ahead of the EU both in digitisation and towards climate neutrality, not to speak of the necessary ramp-up in defence spendings. This means that in financial policy a lot of work awaits the new parliament, especially the members of ECON.

During its last term, the EP treated a wide range of financial policy measures. Whereas the Sustainable Finance Strategy, as part of the Green Deal, intends to support the economy's transition to greater sustainability, the Consumer Credit Directive, adopted in October 2023, aims to improve consumer protection against indebtedness and over-indebtedness. To this end, the directive addresses micro-credits, overdrafts and ‘buy now pay later’ loans. Concerning the Digital Euro, the ECB Governing Council, in October 2023, decided to move into the preparatory phase which will last until October 2025 before we may see a digital Euro being introduced as of 2027. Meanwhile, with the Payment Services Directive (PSD2) and the Payment Services Regulation (PSR), the EU Commission aims to improve consumer protection, the security of payment transactions and the supervision of payment service providers. Through its Open Finance (FiDA) approach, the Commission intends to create a legal framework on the use of and access to customer data of financial institutions.

Retail Investment Strategy: Ban on inducements deferred

Last, but certainly not least, Parliament and Council are currently dealing with the Commission’s proposal (issued in May 2023) for a Retail Investment Strategy (RIS), aiming at a larger participation of retail investors in capital markets. “The more savings can be activated, the easier it will be to finance the huge transformative projects lying ahead of the EU”, the logic behind the scheme goes. However, the financial services industry – banks, asset managers, insurers – were shocked by Commissioner Mairead Mc Guiness’s plan to partially ban inducements on retail investment transactions, introduce benchmarks to better compare thousands of (at times incomparable) investment products and their prices on an EU-wide scale and increase the supervisory powers of European institutions such as ESMA and EIOPA to the detriment of national supervisors. As a consequence, EP Rapporteur Stéphanie Yon-Courtin (Renew Europe) came up with a softened draft in the spring of 2024 which was approved by the ECON committee, though against the votes of S&D and the Greens. In April, the EP plenary authorized ECON to enter into trilogue negotiations with Council and EU Commission. The negotiations - not only on RIS, but on most of the other financial policy dossiers mentioned above - will start or be continued in the new legislature.

This new legislature will however be marked by the differences in financial policy goals as being displayed in the various EU parties’ manifestos. As for the EPP, strengthening financial education is being seen as a main lever to enhance retail investors’ engagement in financial markets. The party family calls for maintaining a choice between using digital means or cash while it pushes strongly for a completion of a Capital Markets Union and a Banking Union. The idea behind is that without deepening the capital market in the EU and turn the Common Market into a banking union deserving its name it will be difficult to prevent investors (needed to finance the transformation) from putting all their dollars or Euros into the US.

Meanwhile, the S&D family, certainly less close to the financial services industry, calls for more effective taxes on companies, windfall profits, capital and financial transactions. The socialists support what they call a ‘fair internal market’ for goods and services with clear rules on state aid. Renew Europe intends to adapt tax rules to promote ‘sound and prudent fiscal policies’. With a view at the demographic shift, the alliance of liberal parties calls for a reform of pension and social security policies. Alike the EPP, Renew wants to deepen the Capital Markets Union and Banking Union and to create better financing opportunities on the primary capital market for private investment. The Greens focus on improving financial consumer protection which is why they will continue to fight for at least partial inducement bans within the context of the RIS mentioned above.

Outlook for the next legislative period: Capital Markets Union at the core

As a matter of fact, progress towards a true Capital Markets Union is on top of the agenda for financial policy makers in the new legislative term. Recent proposals by the EU finance ministers, such as Christian Lindner from Germany or Bruno LeMaire from France, include the removal of barriers for institutional and private investors, stock exchange listings, real-time access to market data and securitisation investments. The reform of the banking union and the introduction of the digital euro are also on the agenda.

In this context, a remarkable intervention of German Chancellor (and former Federal Finance Minister) Olaf Scholz (Social Democrats) occurred on June 5th, at the meeting of the Mutual Savings Banks (Volksbanken and Raiffeisenbanken) in Berlin. In surprisingly clear terms, Scholz called for corrections to the European Commission's proposal on European deposit protection and the reform of the crisis management framework for banks. Both proposals are heavily backed by the Elysée and “Bercy”, the French Financial Ministry. Scholz insists on the completion of the EU capital markets union, but puts the brakes on the European banking union. ‘We are prepared to create a European reinsurance scheme for national deposit guarantee schemes as part of a comprehensive overall package,’ said the Chancellor. He is thus backing the (retail-investor-owned) Mutual Savings Banks as well as the (local community-owned) Savings Banks: In Germany, he said, there are well-functioning protection systems for smaller banks that should not be jeopardised. With this statement, issued only a few days after French President Emmanuel Macron’s enthusiastically celebrated state visit to Germany, Olaf Scholz, in Hanseatic coolness, made clear where the French-German friendship, the famous “driving engine” of the European Union, will continue to have its limits.