Happy Birthday to EU!
by Berthold Kracke, CEO of Clearstream Banking Frankfurt
Many Europeans, including myself, whose upbringing and education took place during the 1970s and 80s will remember it being tinted with a European-ness that had been largely absent from the fragmented Europe that existed before. As Europe opened up we had pop music from Sweden playing on the radio, Total Football from the Netherlands, German car brands fast becoming household names and Italian food was available in local stores throughout the European Economic Community. But that wasn’t always the case!
Anyone who had paid attention during history classes will remember that one of the first things you learned about European history was how the previous 1000 years had been characterised by barbaric and belligerent little nations, and how its history was a history of war. Agincourt, Austerlitz, the Somme and Waterloo were often studied as key moments in Europe’s collective story, but it seemed that little had been learned, these emperors and kings who ordered the indiscriminate slaughter of all who did not share the same ideologies frequently featured in this repetitive cycle of destruction. There had to be another way to live with one another.
And now look where we are: the instrument for cooperation, solidarity and cross-border opportunity has celebrated its 60th birthday and how fitting it should be that the celebrations for the 60th anniversary of the Rome Treaty should take place where it all began. As the saying goes, all roads may lead to Rome, however, there seems to be no clear route beyond it.
The European Union (EU) is in the midst of a movement clamouring for change, but with no agreed clear single way forward as yet. Teresa May triggering Article 50, thereby starting the two-year Brexit countdown clock, feeds into the uncertainty about the "quo vadis, Europe?" and the future relationship between the United Kingdom and the EU. But, comfort can be taken from the patterns in European integration, or lack of, during the preceding 60 years which normally occurred in two-decade cycles. The end of World War II saw an era of optimism and dynamic progress until the pessimism and stagnation of the "post-Luxembourg" period took hold. This was again followed by a revitalisation in integration with the Single European Act, Schengen and the big bang enlargements of the 2000s via the EU accession of the Eastern European Member States. Therefore, it could be that now, after a decade of stasis, the EU stands on the fringe of a renewal.
There is no silver bullet solution, but there is evidence to suggest that a renewal could on the way, at least with regards to financial integration. For example, in February Clearstream’s settlement business migrated to TARGET2-Securities (T2S) centralised platform. T2S is primarily about the simplification of cross-border securities settlement and a reduction of associated costs, with the added benefit of creating a single pool of liquidity and collateral for our customers. In this sense, it is a classic EU project: harmonising and simplifying cross-border activity to gain efficiency and cost gains for the good of the European markets as a whole. It is, however, also more than this. It shows that, as a community, Europe can still collaborate successfully. While T2S as a project is tackling the Eurozone, and not the EU, as a core of markets they can continue to move together towards a greater level of harmonisation and to foster additional growth for the Eurozone, which is ultimately the issue that has troubled the EU ever since the turn of the decade. There were challenges along the way of course, but we pulled together and delivered something that was mutually beneficial, so why not build on this success and push forward?
My colleague Marc has already touched on the subject of the next steps following T2S and I would like to echo this. T2S is a necessary step but it is not sufficient; we need to be able to show that we foster this form of integration on a wider level.
One logical next step for European financial market integration would be the establishment of a Capital Markets Union . In Europe the capital market set-up is still largely fragmented and we should be pushing to move towards a place where a more integrated market delivers benefits for the real economy. For instance, if capital can flow freely between all the Member States of the EU then investors would be able to get capital from beyond their domestic markets and unlock capital from around Europe. Not only could this form of integration be highly beneficial for financial markets in Europe but it could also be the advent of a new era of desire for integration and cooperation that builds on the success of T2S.
The EU has been confronted by adversity before and has been able to bounce back with support and action for further integration. Faced with the myriad crises that currently lie before it, there is not one particular route that must be taken, no “right” and “wrong” answer for where Europe should go next. However, the best solution would be a vision that we Europeans could shape together, and build a better, peaceful, and economically successful Union for generations to come.