Does EMU Require CMU?

Every initiative that potentially increases the effectiveness of monetary policy is welcome. The European Union's Capital Markets Union (CMU) project is potentially a point in case, even though monetary policy is not a policy target of CMU. Increasingly developed capital markets in the EU are neither sufficient nor necessary conditions for the effective conduct of monetary policy. Credibility of the central bank, a wellfunctioning and flexible operational framework, as well as appropriate, targeted instruments compatible with the respective financing structures are more important. Still, more efficient pricing, risk-sharing, and more independence from the banking sector could increase the effectiveness of monetary policy in the euro area, possibly easing potential technical restrictions in crisis times and in an environment of very low interest rates. Moreover, the indirect benefits from more diversified funding sources in general, and capital markets-based funding in particular, also speak in favor of promoting the CMU from a monetary policy perspective.