EU Capital Markets in 2023: Stagnant Progress, Global Competitiveness Gaps, and the Urgent Need for Deeper Integration

Headline Findings: Policy Delivered, Markets Stagnant

The sixth edition of the Association for Financial Markets in Europe (AFME) Capital Markets Union Key Performance Indicators report, published on 9 November 2023, presents a sobering assessment of the state of EU capital markets. Despite the delivery of all 2020 CMU Action Plan measures, the report’s authors conclude that “certain goals have not materialised to any meaningful degree,” in the words of AFME Chief Executive Adam Farkas. EU capital markets show no significant medium-term progress across the core indicators tracked since 2016. Slight improvements in some key performance indicators (KPIs) are attributed to cyclical recovery from the volatile conditions of 2022, rather than the effects of any structural reform.

The report confirms a persistent trend: the European Union continues to lag behind the United States and the United Kingdom in global competitiveness indicators across access to finance, market liquidity, and digital finance. This gap, which has widened in key areas over the past decade, shows no signs of reversal. The data raises uncomfortable questions about whether the ambitious legislative agenda of the Capital Markets Union has delivered tangible market deepening—or merely satisfied political milestones without corresponding shifts in market behaviour.

[IMAGE: A bar chart comparing EU, US, UK competitiveness scores on a few key metrics (access to finance, liquidity, digital finance).]

IPO Collapse: New Listings at 2011 Levels

One of the most striking signals of EU capital market weakness is the collapse in initial public offerings. Total IPO issuance in the EU fell 72% in the first half of 2023 compared with the same period in 2022. On an annualised basis, the EU is on track for the lowest corporate IPO volume since 2011. The EU27’s share of global IPO proceeds has eroded dramatically: from around 20% in the early years of the Single Market to just 7% over the past three years. This represents a profound loss of primary market capacity and a deterioration in access to equity funding for European companies.

The decline is broad-based, affecting not only large listings but also small and medium-sized enterprises (SMEs), early-stage companies, and crowdfunding platforms that rely on public equity markets as an exit and growth mechanism. The AFME report notes that the EU’s equity market ecosystem is becoming less attractive to issuers, with higher regulatory costs, fragmented listing rules, and thin after-market liquidity pushing companies toward private funding or overseas exchanges. Without a vibrant IPO market, the EU risks losing the next generation of innovative firms to the US, UK, or Asian markets.

[IMAGE: A line graph showing EU IPO volume from 2011 to 2023 H1, highlighting the 72% drop in 2023.]

Corporate Funding: A Modest Rebound, Still Below Pre-COVID Norms

Non-financial corporate funding from capital markets (including equity, corporate bonds, and securitisation) rose to 10.3% of total corporate financing in 2023, up from 7.8% in 2022. However, this figure remains well below the peak of 14.0% reached in 2021 and the 2016–2019 average of 11.5%. The uptick is predominantly cyclical—a recovery from the turbulence of 2022 when interest rate shocks and geopolitical uncertainty froze issuance—rather than evidence of a structural shift toward market-based finance.

European companies continue to rely heavily on bank lending, which accounts for the vast majority of their external financing. While bank lending has stabilised, it cannot alone meet the enormous capital requirements driven by the twin green and digital transitions. The European Commission estimates that the EU needs an additional €620 billion per year in investment to achieve its 2030 climate and digital targets. A capital market that provides only marginal support for corporate funding cannot bridge this gap. The report underscores that without deeper capital markets, the financing structure of the EU economy remains fragile and insufficiently diversified.

[IMAGE: A stacked area chart showing EU corporate funding sources (bank loans, bonds, equity, securitisation) as a share of total funding from 2016 to 2023, with a dotted line for pre-COVID average.]

Securitisation and Fintech: Two Critical Gaps

Two areas where the EU falls conspicuously behind other advanced economies are securitisation and fintech investment. The EU securitisation market remains a fraction of the levels seen in the United States, the United Kingdom, and Australia. Despite repeated regulatory efforts to revive the market—including the 2018 Securitisation Regulation and the 2021 revisions to the prudential framework—outstanding volumes have not recovered to pre-crisis levels. The report shows that EU securitisation issuance as a share of GDP is less than one-tenth of the US level.

This matters because securitisation is a critical tool for freeing up bank balance sheets, enabling lenders to extend more credit to households and SMEs. Its underdevelopment constrains the EU’s ability to channel savings into productive investment. Meanwhile, fintech investment in the EU plunged 78% in 2023, reflecting a global pullback but also structural disadvantages: fragmented regulation, limited access to venture capital, and a smaller pool of growth-stage investors. The EU’s share of global fintech funding has fallen, even as the region boasts a high density of fintech startups. Without a deeper capital market that can provide follow-on funding, many promising European fintechs will either relocate to the US or be acquired by larger competitors.

[IMAGE: A side-by-side bar chart comparing securitisation issuance as a percentage of GDP in EU, US, UK, and Australia (2022 or 2023 data), and a line chart showing EU fintech investment from 2018 to 2023 with a 78% drop annotation.]

ESG Bonds: The Lone Bright Spot? A Cautionary Tale

The one area where the EU clearly leads is ESG bond origination. The AFME report notes that EU issuers accounted for 12.7% of total global ESG bond issuance in the first half of 2023, retaining a leadership position that has been built over several years. Driven by the European Green Deal and the Sustainable Finance Disclosure Regulation (SFDR), the EU has created a regulatory framework that encourages green, social, and sustainability-linked bond issuance.

However, this single bright spot cannot mask the broader competitiveness gap. ESG bonds represent a small and specialised segment of overall capital markets. Moreover, the EU’s leadership faces challenges: regulatory fragmentation among member states, concerns over greenwashing, and the risk that a thicket of disclosure rules could discourage smaller issuers. More importantly, the EU’s strength in ESG bonds does not compensate for weaknesses in equity, securitisation, and venture capital markets. The green transition will require massive equity and mezzanine financing for unproven technologies, not just debt instruments.

[IMAGE: A line chart showing EU share of global ESG bond issuance from 2018 to 2023, with a note contrasting it to the EU share of global IPO volume.]

The Way Forward: From Political Agreement to Market Reality

The AFME report’s central message is that delivering policy legislation is necessary but insufficient. The EU has enacted over 20 CMU-related measures since 2020, covering areas from prospectus simplification to SME growth markets, covered bonds, and long-term investment funds. Yet the underlying market structure has not changed. The report calls for a shift in focus from legislative output to market outcomes: deeper integration of national capital markets, harmonisation of insolvency and tax rules, reduction of regulatory fragmentation, and stronger post-trade infrastructure.

Specific recommendations include: completing the European Single Access Point (ESAP) for corporate data, accelerating the development of an EU-wide consolidated tape for equity and bond trading, removing cross-border barriers to retail investment, and reforming the securitisation framework to align capital treatment with risk. For fintech and innovation, the EU needs to build a genuine venture capital ecosystem, supported by a cross-border fund passport and large-scale institutional investor participation.

The competitiveness gap with the US and UK will not close on its own. As the report notes, US capital markets provide companies with deeper liquidity, more diversified funding options, and greater access to risk capital. The UK, despite Brexit, retains a deep pool of institutional investors and a flexible regulatory approach. The EU’s decision to build a capital market on top of 27 different national systems, each with its own legal, fiscal, and supervisory traditions, remains the fundamental obstacle. The urgency of the twin transitions makes deeper integration not merely an economic objective but a strategic imperative. Without decisive action, the EU’s capital markets will continue to stagnate—and the region will struggle to finance its future.

[IMAGE: A final conceptual image: a minimalist abstract illustration showing a fragmented European Union map with small, broken arrows representing capital flows, contrasted with a cohesive, thick arrow from the United States and a moderate one from the United Kingdom. The background is a muted blue-grey with subtle financial chart lines (downward IPO trend, low securitisation bar). No text, no watermark, clean professional style.]