CySEC chief stresses the need for a Capital Markets Union

George Theocharides, Chairman of Cyprus Securities and Exchange Commission (CySEC) stressed, at the Economist 20th Annual Cyprus Summit, the need for further European integration, noting that a Capital Markets Union would allow investors to fund European companies more easily, which would make them more competitive in the global market.

In his opening remarks, he said that the uncertainty caused by the geopolitical tensions leads to an increased risk aversion from the perspective of consumers and the perspective of investors. The investors are moving out of the risky assets and they are moving to a safe haven of safer assets, such as the US dollar, gold, U.S. Treasury bonds. This has led to a weakening of the euro compared to the dollar. He added that the dollar is also being strengthened now due to expectations of pro inflationary policies that probably will be taken by the Trump administration, while the euro is weakened due to the fear of potential U.S. trade tariffs that can impact European growth.

Theocharides said that a Capital Markets Union, an idea first talked about in 2014, is necessary. "It's clear that Europe needs stronger capital markets to finance European companies to be able to compete with other global competitive areas and regions, such as the United States and China", he said, adding that European investors could finance European companies, instead of putting their money into U.S. companies and entities.

He also emphasized the importance of financing innovation and completing the reforms of the financial institutions. Also, he mentioned the need for transparency across the financial markets, strengthening market integration, enhancing corporate governance and put more money towards the green transition.

Wim Van Aken, European Stability Mechanism mission chief for Cyprus, said at the same session, that Cyprus is more vulnerable to external shocks and geopolitical tensions than other larger countries, noting that Russian sanctions impacted Cyprus significantly, while also noting Cyprus’ proximity to the Middle East.

He underlined the importance of European integration in the single market to face these challenges. He repeated that a Banking Union and Capital Markets Union are very important in this context because they provide different and diverse sources of financing at a time that financing may choose different routes.

Van Aken noted that Cyprus is well positioned, with a strong performance and favorable economic projections. “Probably in 2026 Cyprus will reach 60% of debt to GDP ratio”, he noted, saying that a decade ago nobody would have expected this. Moreover, he said that the banking sector is in the strongest position since decades, with higher rates boosting earnings and driving solvency ratio above the euro area average.

However, despite the favorable outlook, Cyprus remains vulnerable in several areas, he said, highlighting the importance of maintaining reform momentum to address the vulnerabilities and harness the benefits of European integration. As he said, this includes accelerating the green and digital transition under the Recovery and Resilience Plan. Cyprus is about halfway through on its RRP, he noted, saying that two more years remain where it would be great if Cyprus would take the full benefit of what is in the plan.

Furthermore, he said that Cyprus would benefit from further diversification, since it would make it resilient to the geoeconomic fragmentation. He mentioned as examples of current efforts of diversifications undertaken by Cyprus, the tourism sector with a diversification of new markets and new products, while also referring to the introduction of the ICT sector, as well as the efforts to introduce greener energy mix and the internationalization of higher education and healthcare services.