Long run consequences of a Capital Market Union in the European Union

Capital markets are more and more integrated but remain partially separated. To speed up integration, help absorb asymmetric shocks and thus reduce the need for government support in times of crises, the creation of a Capital Market Union in the EU has been suggested. This policy brief discusses long run consequences of perfectly integrated capital markets, ignoring crises but taking population ageing into account. Recent research shows that redistribution would take place, from fast ageing to slow ageing countries, because investors seek access to the largest labour markets, delivering higher returns on investments. The GDP per capita could be more than 2 %-points lower in some countries and 2 %-points higher in other countries, compared to autarky. The redistribution pattern depends on social security reforms: some countries would lose from capital markets integration without any reforms but would gain if the retirement age was increased.