European Capital Markets Union after Brexit: Derailment or Reconfiguration?

The EU’s ‘Capital Markets Union’ (CMU) agenda has been a flagship initiative of the Juncker Commission. Its principal objective is to move European economies from ‘bank-based’ to ‘market-based’ forms of finance. As the member state with the largest and deepest capital markets in the EU, the UK played a prominent role in embracing and shaping CMU between 2014 and 2016. However, this embrace was paralleled by trenchant UK opposition – from the City, the Bank of England and the Treasury - to the further empowerment of capital market supervision at the EU scale. This paper examines the extent to which Brexit might therefore lead to either a derailment or a reconfiguration of the CMU agenda. Drawing on interviews with financial lobby groups and policymakers in both the UK and the EU, the paper argues that Brexit creates new opportunities for supranational supervisory centralisation and harmonisation. The paper concludes that Brexit could act as a liquidity shock to European capital which in turn could produce new barriers to the mobility of capital within the Single Market. However, Brexit also paradoxically entails that the exit of the EU’s largest capital market could facilitate a new wave of financial integration and diversification in the second phase of CMU through enhanced supranational centralisation and legislative convergence.