An open strategic autonomy must be ensured in the EU’s financial sector

Initially limited to matters of defense, the concept of strategic autonomy has in the past years found echoes in all EU policies. We are moving towards less trade with geopolitically more risky countries, with a goal of greater independence in the production of essential goods and digital sovereignty. At the same time, the EU strives for deeper integration and must avoid protectionism, aiming for an open strategic autonomy.

According to the European Commission, the EU should be „open where we can, but autonomous where we must”. The financial sector is one of the key areas in which such an open strategic autonomy must be ensured. Financial and real economy sectors go hand in hand, and without fostering autonomy in both, the macroeconomic stability and resilience of the EU cannot be ensured. Achieving this aim requires a complex dance of dependencies and capabilities.

The EU’s financial sector is large and very open internationally. This openness spurs competition; however, to date, the European financing model is still heavily skewed towards bank financing. Too few European companies go public, and when they do, they tend to use third-country exchanges to raise funding. Excessive reliance on third-country critical service providers, such as central counterparties clearing derivatives and third-country digital technologies, creates financial stability risks in times of market disruption. We must therefore take the necessary steps to tackle such dependencies.

In this pursuit, however, we must not simply replace one dependency with another. We should avoid the pitfalls of picking national or binational winners, focusing on national goals rather than European ones, and setting standards in areas where we are not technologically competitive.

Let me expand on this idea. While one could see a point in cautioning that „if we don’t build our own champions in all areas – digital, artificial intelligence – our choices will be dictated by others”¹, we cannot proceed by simply picking national champions and allowing them to compete in strategically sensitive sectors internationally. Doing so would stifle innovation and put the SMEs from smaller EU member states at a disadvantage, as they would not be able to benefit from customized innovative products.

Instead of picking champions, the EU should identify key European eco-systems that deserve support and foster deeper EU-wide cooperation. Horizontal rather than vertical policies could be pursued, with vertical policies embraced only where they contribute to the EU-wide strategic autonomy without undermining the level playing field. While completion of the Banking Union and the deepening of the Capital Markets Union are crucial, harmonization of the legislation with regards to insolvency and taxation is of prime importance too. To this end, we welcome plans of the European Commission to present Customs and Taxation as well as further Capital Markets packages this winter.

The EU’s open strategic autonomy is inseparable from the promotion of financial innovation supporting the EU’s climate and digital transitions. The EU’s role as a global standard-setter can be a key element in the EU toolbox to promote this. Nevertheless, we cannot just set the rules and be the referee; we need to be players as well in order to credibly shape global standards. Therefore, the EU can only use its standard-setting power in areas where it is technologically prominent and competitive.

One such area is data collection, management, and protection. Through such initiatives as the European Single Access Point as an EU-wide data powerhouse with sustainability data on European companies, or the creation of the consolidated tape for transactions taking place on trading platforms across the EU, European companies would be made more visible, accessible, and comparable. Combined with an interconnected and open technology sector in Europe, such initiatives would provide the continent with a strong position to set global standards and promote European values, as well as to maintain and expand Europe’s economy.

The past few years have witnessed a need to strike an appropriate balance between achieving economic and financial autonomy on the one hand and maintaining openness and global cooperation with like-minded partners to reap the potential benefits thereof, on the other. The EU must continue working to achieve an open and stable international economic ecosystem against the background of profound changes to the global economic and geopolitical order. Experience has shown that coping with such changes takes time, leadership, and stamina.

Let us thus follow the tried and true approach of “not letting a good crisis go to waste” and institutionalize our long-term strategies.

---

¹ Interview with French President Emmanuel Macron at the Radio France International, September 2019.