MNI POLICY:Covid A Capital Market Union Wake-Up Call-ECB Execs

The coronavirus pandemic should serve as a "wake-up call" for the eurozone to complete its capital markets union, speeding up recovery and strengthening public finances, three members of the European Central Bank's Executive Board wrote in a blog post Wednesday.

Rapid progress with the capital markets union would support the smooth transition of monetary policy and limit the risk of growing asymmetries among member countries recovering from the Covid-19 shock at different speeds, ECB Vice President Luis de Guindos, Fabio Panetta and Isabel Schnabel argued. It would facilitate structural changes and support the transition to a low-carbon, digitalised economy.

"Financing the post-crisis recovery is one of the most pressing challenges Europe is facing today. Capital markets will be crucial," the authors wrote. "Easier access to market-based financing instruments would lessen firms' reliance on bank financing when the banking sector has been weakened by a shock, such as the Covid-19 crisis."

De Guindos, Panetta and Schnabel pointed to research that suggests firms with higher growth potential are more likely to resort more to public or private equity financing than debt financing, and that capital markets are better at financing innovation and new sources of growth.

"Some initial indicators show that the pandemic has triggered a refragmentation within euro area financial markets, mainly through bond and equity markets," they wrote, "At the height of the pandemic, this meant that our private purchase programmes could not reach the non-financial corporations of all euro area countries in the same way."

Bond issuance for the European Commission's Covid-19 recovery and resilience facility will rely on well-functioning capital markets, they added.