Completing the Capital Markets Union and its impact on economic resilience in the euro area

This section examines how the deepening of the single market for capital can contribute to strengthening economic resilience in the euro area. First, it argues that ongoing policy action to establish a Capital Markets Union (CMU) should continue to focus on lowering the corporate sector's heavy reliance on banks, correcting the "home bias" of credit and capital markets, strengthening market transparency and reducing differences among regulatory and institutional frameworks. Next, the section describes the transmission channels through which a well-functioning CMU could reduce euro area Member States' vulnerability to shocks and increase their capacity to absorb and recover from those. For instance, a well-functioning CMU could help stabilise national income, strengthen the passthrough of policy interest rates, support banks' lending capacity via well-designed securitisation, facilitate the reallocation of resources and support aggregate demand. Finally, the CMU project should not be seen in isolatio, but as part of the broader set of policies and reforms for completing the EMU architecture, notably the completion of the Banking Union and the setting up of macroeconomic stabilisation function.