EU Commissioner Valdis Dombrovskis replaced Jonathan Hill of the UK at the Commission following the Brexit decision. He recently sat down with CNBC for an interesting interview where he shared some insight into his perspective on the Capital Markets Union (CMU) in light of the UK EU referendum.
Part of Dombrovskis’ portfolio includes “developing proposals to deepen the Economic and Monetary Union” of Europe. Dombrovskis, who is from Latvia, emphasized continuity following Hill’s departure but also cautioned against the UK in “cherry picking” what they are willing to do and what they are not in the new European political order.
The CMU is a plan by the European Commission to rationalize capital movement across Europe by reducing persistent barriers. The objective of deeper and more integrated capital markets has been broadly embraced and is expected to lower the cost of funding and make the financial system more resilient and easier to work with for both large and small companies and investors. CMU impacts not just traditional finance but alternative finance and Fintech including investment crowdfunding. CMU is perhaps the most important policy initiative emanating from Brussels today but with the UK gone this causes additional challenges.
The UK government is formulating its exit approach now and remaining EU members are discussing as to what the relationship will be with a UK outside the EU. The difficulty is that Europe needs the UK and the Brits need Europe. The UK is a global financial center and a hotbed of Fintech innovation. The UK dearly wants to maintain this global role. Some policy-makers believe the UK should be punished for their departure.
But if the Commission is too harsh with the UK it will most certainly imperil the vision of a true single market and put the entire EU at risk. The EU should work to accommodate the needs of the UK. But Europe must enter a period of introspection to better understand why a country went through the painful referendum process and inevitably voted to get out. The bureaucracy in Brussels needs quite a bit of work. That should be self-evident.