MNI: Watered-Down EU Deal Points To Resistance To Draghi Plan

A heavily watered-down statement on the European Union’s push for Capital Markets Union agreed by the bloc’s leaders Thursday is an early indication that the transformative agenda for boosting competitiveness set out by former Italian premiers Enrico Letta and Mario Draghi this week will face tough opposition, with smaller countries angered by what they see as attempts to ram through ambitious reforms.

In contrast to more ambitious draft summit conclusions calling for harmonisation of corporate tax and insolvency regimes and an extension of joint supervision in a bid to pool capital markets to enable Europe to respond to the industrial challenges posed by the U.S. and China, the final document dropped references to tax altogether and toned down the push for unifying insolvency laws. The leaders also asked the European Commission to prepare a report on centralised supervision, but only for the most systemic firms.

While France, Italy and the Netherlands, together with German Chancellor Olaf Scholz, had backed the original proposals, these were resisted by countries like Luxembourg and Cyprus, whose financial services industries have drawn considerable offshore wealth, and by Ireland, whose low corporate tax rates have made it the European headquarters of choice for big U.S. tech firms. This latter group also enlisted support from Baltic and eastern European countries with relatively undeveloped financial services, making them the majority. (See MNI: Ireland, Luxembourg Resist Joint EU Supervision Proposal)

COMMISSION REPORT

Countries in favour of a more ambitious CMU will now hope that the Commission, an enthusiastic proponent of the project, will come back with a strong proposal on joint supervision. But one EU official said there had been “bad blood” in talks following the announcement of the Letta plan and a keynote speech by Draghi in Brussels on Wednesday.

"I sense a push by France, Spain, Italy and possibly Belgium to force changes through which the southern member states have always wanted but could not get through," the source said.

Attempts by EU Council President Charles Michel to ram through the CMU proposals particularly angered the smaller states, the official said.

"Michel is always putting forward a draft which has been rejected by a majority of states, mostly small ones, but has the support of France, Italy and Spain,” the source said, adding that the southern bloc was taking advantage of divisions within the German government between pro-CMU Chancellor Olaf Scholz and his more sceptical Finance Minister Christian Lindner.

NEW EUROPEAN DEAL

The summit conclusions called for talks on a "New European Competitiveness Deal", with a June summit charged with coming up with more concrete set of proposals for the next Commission and European Parliament to implement over the following five years. Draghi has already signalled his impatience with the so-far sluggish progress on CMU, suggesting the project as well as other EU competitiveness policies might be more effectively taken forward by a "subset" of states, in comments which one EU source called a “clear pointer" to his ambition to be the next Council president. (See MNI: France Backs Proposal For Joint EU Retail Bonds-Officials)

But alliances between countries are likely to vary according to the proposals on the table, sources said. On topics like more joint borrowing and spending, industrial strategy and state aid, more fiscally-challenged states, like France, Italy and Spain are likely to back Draghi, while countries like Germany and the so-called “frugal” states will continue to apply the brake, they said.