2022 Volume 2022 Issue 42 Pages 1-
This paper explores policy implications of the EU's Green Recovery on the Banking Union and the Capital Markets Union. The analysis is based on an assumption that the issuance of Next Generation EU （NGEU） bonds which started in 2021 to address the immense financial needs of the member states severely hit by the pandemic of COVID-19 would unintendedly facilitate deepening of the EU financial integration. Being mindful of the difficulty to tell how it will evolve and what it will bring about given that the current situation is unprecedented, the author concludes that the NGEU bonds can have significant impacts on the two major components of the EU's Economic and Monetary Union （EMU）.
As for the Banking Union, the NGEU bonds issuance means an advent of new safe assets in the Single Market. The issuance is the first large-scale debt-mutualization among the member states which has not been envisaged in the earlier similar attempts such as European Safe Bonds （ESBies） and Sovereign Bonds-Backed Securities （SBBS）. There can be a good chance that it will reduce the home-country bias of the banking sectors in some southern member states which has impeded risk-sharing between the northern member states and the southern member states, leading possibly to an agreement on the creation of European Deposit Insurance System （EDIS）.
Regarding the Capital Markets Union, issuance of the NGEU bonds means an increase of depth of liquidity in the common financial market which can attract cross-border investment both inside the Union and from outside of the Union. It will also strengthen the necessity to enhance efficiency of the securities settlement system through amendment of relevant community rules, including Central Securities Depositories Regulation （CSDR）, and development of a pan-European payment and settlement infrastructure.
Nonetheless, the author suggests that the degrees of impact on the two components of the EMU will differ from each other. On the one hand, the impact on the completion of Banking Union which requires EDIS is unclear due to its highly politicized character surrounding risk-sharing. On the other hand, the impact on the upgrading of Capital Markets Union is rather straightforward and evident, even though it is limited. Another breakthrough would be needed to realize a harmonization of insolvency laws of the member states; the most important and difficult part of the project.
