Thresholds: where Europe's capital union stops short

Almost 40 cents of every euro German households have saved sits in a bank[1]. Across the country over three trillion euros sit and earn next to nothing[1].

The EU has proposed central supervision of its capital markets. The Commission set its scope to only the dozen largest infrastructures. Everything smaller stays under national control, by design.

The European Commission’s Savings and Investment Union (SIU) aims to unify 27 national capital markets into one so European capital funds European firms[2]. The centrepiece is supervision through unified policing of the trading venues, clearing houses (CCPs) and securities depositories (CSDs)[2]. The SIU is the 2025 relaunch of the 2015 Capital Markets Union (CMU). The Commission has identified the fragmentation of European capital as a central drag on competitiveness, an annual investment gap the Draghi report put at €750–800bn[3]. In a legislative proposal on 4 December 2025, which is currently in Council negotiation, the Commission aims to provide unified supervision[4].

Deposits make up a larger share of EU household wealth than in the US[5][6]. This is money sitting in banks rather than in capital markets. The EU has identified this issue and launched the CMU in 2015, spreading efforts across three action plans. These efforts have fallen short. In its 2025 CMU Occasional Paper the ECB stated that integration developments were disappointing, with cross-border activity and risk sharing flat[7]. Advances in challenging areas such as taxation, insolvency, or supervision were “either stalled in the legislative process or saw progress only in the form of nonbinding actions”[7].

The December 2025 proposal is the first binding supervision proposal. It would move supervision of the largest market infrastructure to ESMA and create a new Executive Board[4]. Key aspects would include the harmonisation of the European capital market through a Pan-European Market Operator (PEMO) licence and the standardisation of trading-venue rules[4]. This would allow for easier business across EU borders and remove national regulation barriers for the largest operators. This proposal is the strongest step this decade. 

ESMA’s supervision is limited to large actors. Below €100bn open interest or €500bn OTC notional, entities will remain under national supervision[4]. According to the Commission's estimates, this would cover 8 Central Counterparties (CCPs), and a similar number of Central Securities Depositories (CSDs) and trading venues in the EU[8]. This scope was explicitly chosen against ESMA direct supervision of all infrastructures on cost-benefit grounds[8]. The Commission “discarded [national level supervision] as it would not address the problems identified”[8]. Smaller market infrastructure that small financial centres compete on remains under national regulation by choice. 

The powers of ESMA are real: fines up to 10% of turnover and the ability to restrict or force divestment of business activity that poses risk[4]. The six largest economies are driving it, and Ireland's Taoiseach, Micheál Martin, has claimed roughly 80% agreement[9]. The threshold is the limiter on how much integration will actually happen. Below the threshold, supervision is voluntary, meaning a member state may hand its own smaller infrastructure to ESMA, or keep it national. The extension of European supervision into the lower tier is left to the same national authorities who set the favourable regulations that tier competes on. ESMA regulates groups even if only one member is above the threshold[4]. While this does add smaller members to the regulatory pool, it does not address the wide range of smaller market infrastructure which is not in any part above the threshold.

Ireland takes over the rotating presidency of the Council of the EU for the second half of 2026. It says it will close a deal. The proposal it is closing leaves smaller centres like Dublin's tier under national supervision, through the voluntary opt-in. Martin describes Ireland as an “honest broker”[9]. The text he is brokering already protects the sector Ireland's past objections protected. The Draghi report, which the Commission cites as the rationale for the SIU, recommended a single CCP and a single CSD for all trades, starting with the largest and letting their pull draw in the smaller ones[3]. The December proposal makes the threshold a limit rather than a starting point. The capital markets union became the savings and investment union in 2025. The name changed. The supervisor's reach did not.

The Council's further development of the supervisory threshold will determine the strength of the union's policy. If the threshold were lowered to include nationally-anchored market infrastructure, the policy would facilitate a more unified SIU. If the threshold were to hold or rise, the union would preserve the fragmentation it aims to remove. Direct supervision would start mid-2029 at the earliest, so even if effective, integration is years away. The last decade produced rules, new labels, and supervision of the largest infrastructures. Everyone else, and so the capital, stayed where it was.

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Notes

[1] Deutsche Bundesbank, "Geldvermögen und Verbindlichkeiten der privaten Haushalte," Pressenotiz, 15 January 2026.

[2] European Commission, "Communication on the further development of capital market integration and supervision (COM(2025) 940 final)," 4 December 2025.

[3] Mario Draghi, "The future of European competitiveness," European Commission, September 2024.

[4] European Commission, "Proposal for a Regulation amending Regulation (EU) No 1095/2010 and others (COM(2025) 943 final)," 4 December 2025.

[5] Eurostat, "Households - statistics on financial assets and liabilities," data extracted 24 October 2025.

[6] Federal Reserve, "Financial Accounts of the United States (Z.1), table B.101," Q4 2024.

[7] European Central Bank, "Capital markets union: a deep dive. Five measures to foster a single market for capital," Occasional Paper Series, revised May 2025.

[8] European Commission, "Executive summary of the impact assessment (SWD(2025) 944 final)," 4 December 2025.

[9] Financial Times, "Ireland says it can secure an EU capital markets deal this year," 22 June 2026.

Image credit: Diane Picchiottino, Unsplash

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Continental is a biweekly column on European economics by Felix Schmidt. New issues appear on Substack first and on the International Economics Post within 48 hours.