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Financing of the EU economy - Is the CMU on the right track?

CMU: from action plan to action

By Clamagirand Laurent - Chief Investment Officer, AXA Group


Over the past 12 months, the CMU priorities and roadmap have been fine tuned to foster growth and job creation in Europe. This should be achieved thanks to the stimulation of the real economy via SME and Infrastructure funding.

For insurance companies, the ability to invest in credit paper including long term is key. Beyond the targeted societal impact of CMU, we remain very supportive of the initiative which should provide a strong pipeline of suitable investments.

Securitization, one of the two pillars of the CMU deployment, is progressing. In the current late stage of the credit cycle, an efficient standardization and transparency mechanism is needed more than ever. Extensive discussions on an STS are ongoing but the first outcomes are leading to a complex mechanism. This can make one wonder if the criteria pushed by the regulators are not over-engineered: who, in the end, will be able to structure such investment vehicles?

For insurers, the questions of the regulatory capital charge applied to this new securitization label and of its calibration are key.

Furthermore, infrastructure investments have been highlighted as a CMU priority in the Juncker Plan. Once more, the direction taken is the right one but we are of the view that governance around the plan – mainly with regards to project selection and investment in funds – needs to be strengthened so as to bring to the market viable projects more suitable to institutional investors’ appetite.

For insurers, the questions of the regulatory capital charge applied to this new securitization label and of its calibration are key.

The regulatory capital aspect is a cornerstone for the insurance sector. Even if we welcome the first step made in defining a specific infrastructure asset class with an adjusted capital charge, we are still concerned by the treatment of corporate infrastructures where we see risks arising from the restrictive nature of the retained definition, from potentially rigid criteria, and from a too high calibration proposal.

In conclusion, the CMU definitely seems to be a promising avenue to support the European economy while providing insurance companies, among others, with appropriate investment opportunities. Nevertheless, the plan’s ignition may be too slow and bloated discussions could delay positive – and most needed – results.

Lastly, one of the key successes of the CMU deployment would be to allow a level playing field in the EU, allowing a much-needed enhancement of the European capital markets liquidity. Any postponement of this liquidity improvement should be viewed with concern and solved urgently given the current depressed levels of European investment flows.