Business 14 February 2025, 11:20am

What is the big common European plan that Viktor Orbán talked about this morning?

Portfolio

Hungary's Prime Minister Viktor Orbán spoke about the importance of the European Capital Markets Union. In an interview with public radio MR1, he said that Hungary supports the CMU and sees it as a breakthrough for the European economy. But what is it really? How new is the idea and why does the Hungarian government, which typically sees Europe as an alliance of strong nation states and wants to keep most regulatory issues at member state level, support it?

Statement does not come out of the blue

In a radio interview this morning, Viktor Orbán mentioned the plan for a European capital markets union, stressing that

it could be an important breakthrough for the European economy and that
Hungary supports the introduction of a capital markets union.

Today's statement was not the first by the Hungarian government on the issue, as it has been mentioned several times in recent months, with government communication stepped up in 2024, especially during the second half of the year, under the Hungarian EU presidency:

In early November last year, at the informal EU summit in Budapest, Viktor Orbán announced the adoption of the Budapest Declaration, which aims to boost European competitiveness. As part of the declaration, the importance of fully implementing the Capital Markets Union, reducing regulation and promoting innovation was highlighted.
Then, in early December, following the last meeting of EU finance ministers under the Hungarian presidency, Finance Minister Mihály Varga highlighted that the Hungarian presidency had achieved important successes in increasing Europe's competitiveness, particularly in promoting the Capital Markets Union.
In mid-December, at the press conference concluding Hungary's presidency of the EU, Viktor Orbán pointed out that the European Union was losing its global competitiveness and stressed the need for a capital market union to improve the economic situation.

What is the Capital Markets Union?

The European Capital Markets Union (CMU) is an initiative in the European Union to create deeper and more integrated capital markets between EU Member States. The aim was to

increase the availability of finance by making it easier for businesses and start-ups to raise capital from sources other than bank loans, such as equity and bond issues or venture capital,
standardise capital market regulation across Member States (financial supervision issues are critical here).
encourage cross-border investment to make markets in other Member States more attractive to European investors.
increase the stability of the financial system in order to make the European economy more resilient to financial crises.
promote sustainable and digital investments and to support the financing of green and innovative projects.

Is this a new project?

Not at all. Like almost all initiatives in the EU, the implementation of the CMU is moving very slowly, or you could say that

the CMU is a long-term project.

The idea of the Union first appeared on the EU agenda in 2014, more than a decade ago, and has been gradually taking shape since 2015.

In July 2014, the then President of the European Commission, Jean-Claude Juncker, mentioned the creation of a Capital Markets Union as one of the EU's economic priorities, then in February 2015, the European Commission published a Green Paper launching a consultation with financial actors on how to create a deeper and more integrated capital market, and finally in September 2015, the Commission presented the first Capital Markets Union Action Plan, containing concrete measures for the integration of capital markets.

In 2016-2017, several new regulations were adopted to facilitate the financing of companies, such as simplifying the issuance of securities and the operation of venture capital funds. In March 2018, the Commission announced the CMU 2.0 programme, proposing new measures to promote green finance and access to capital for SMEs, and in December 2019, the promotion of sustainable finance was included in the objectives of the Capital Markets Union as part of the European Green Deal.

Brexit in January 2020 gave new impetus to the initiative, as the strong financial centre of London was already a competitor. In September 2020, the Commission published a new Action Plan for the Capital Markets Union, which included 16 new initiatives, such as the creation of a single European debt register.

In April 2022, a new element in the process of creating a capital markets union was the EU's agreement to create a new European green bond standard to support the growth of sustainable investment.

In 2023, the Commission presented proposals to accelerate the Capital Markets Union, in particular a unified digital financial services and simplified corporate finance, and last year further steps were taken to promote cross-border investment and strengthen sustainable finance regulation. The process is ongoing.

This year, the European Securities and Markets Authority (ESMA) set ambitious targets for simplifying financial regulation and harmonising EU markets, but there is strong resistance from national regulators.

Who are the competitors?

As in all other areas, competition in capital markets is global, and the main competitors for the European Capital Markets Union are global financial centres and integrated capital markets that are more efficient in attracting investment, faster in accessing finance and offer a more flexible regulatory environment.

The US financial system is much more integrated than EU capital markets, the New York Stock Exchange (NYSE) and Nasdaq are the world's largest stock markets, attracting global investors and companies, it is easier and faster for US companies to raise capital, partly due to a single regulatory environment, which is a major competitive advantage, but the US venture capital and start-up ecosystem is also much more developed than in Europe.

With Brexit, the United Kingdom, London, has also become a potential competitor. London was one of the EU's financial centres before Brexit and remains one of the world's most important capital markets. The London Stock Exchange is one of the largest in the world and many European companies still list their shares there. Compared to the EU, the London capital market is more flexible in terms of regulation and can adapt more quickly to market needs.

Competitors include Asian financial centres such as Hong Kong, Singapore, Shanghai and Tokyo, and increasingly the Middle East, with Dubai and Riyadh emerging as global financial centres with significant investor activity and attractive tax environments.

In this global competition, individual European countries are increasingly unable to compete on their own.

Why is the Capital Markets Union important to the Hungarian government?

The Hungarian government argues for the protection of national sovereignty in EU decision-making on a range of issues, and in many cases is critical of the EU's deeper integration ambitions, but the Capital Markets Union is a spectacular exception.

Orbán argues that Europe is at a serious disadvantage (see Draghi report) and sees, among other things, the creation of integrated EU capital markets as a breakthrough for the European economy.
Of course, this would be an opportunity not only for the EU, but also for the Hungarian economy: with the Capital Markets Union, Hungarian companies would have easier access to foreign capital.
Meanwhile, competitors (as listed above) continue to strengthen their own capital markets and absorb capital from other financial centres, including Europe.
And it is also true that the Hungarian capital market is small; the opening of a large and unified EU capital market would also be a great opportunity for domestic companies to diversify their financing.

What is in it for Hungary?

If implemented, the European Capital Markets Union could have more practical benefits for the companies of such a small European country like Hungary:

Companies in smaller countries find it harder to find domestic investors, but in a single capital market they have easier access to foreign investors' money.
A larger, single capital market can operate more efficiently and competitively, allowing companies to access finance at lower rates and on more favourable terms.
A capital markets union can reduce the heavy dependence of smaller companies on banks by giving them access to alternative sources of finance.
A single set of rules should make it easier for companies to enter new markets.
Companies can list their shares on European stock exchanges more easily and quickly, even outside their home country.
Start-ups will have access to international venture capital and other sources of funding more easily.