Finance ministers emerged from Tuesday’s Economic and Financial Affairs Council meeting having cleared two pieces of business that, on the surface, look entirely separate. One was a technical tweak to how the EU shares tax data. The other was a sweeping vision for remaking the bloc’s capital markets. Underneath, both stem from the same frustration: Europe is haemorrhaging money it cannot afford to lose.
The VAT Gap: €128 Billion Sitting on the Table
The numbers are striking. The European Commission estimates that €128 billion in VAT went uncollected across the EU in 2023 alone. Within that figure lies a specific category of criminal activity — cross-border fraud, including what investigators call carousel schemes — that costs member state treasuries and the EU budget somewhere between €12.5 billion and €32.8 billion every year. The range itself tells a story. This fraud is difficult to track by design.
The mechanics are not complicated, even if catching the perpetrators is. Organised networks move goods between member states repeatedly and exploit VAT rules on cross-border trade. At some point in the chain, a company disappears before remitting the tax it collected. The money vanishes. The scheme gets its name because the goods — and the fraud — keep circling.
Until now, the two bodies mandated to chase these criminals across borders — the European Public Prosecutor’s Office and the European Anti-Fraud Office — operated under a structural handicap. To obtain VAT information held at EU level, they had to go through member states one request at a time. The process created delays and gaps that organised crime groups routinely exploited.
The agreement reached on May 5 changes that directly. Under the new framework, both EPPO and OLAF gain direct access to EU-level VAT data on cross-border transactions, including records held by Eurofisc, the network through which national authorities already exchange fraud intelligence. Cyprus’s Finance Minister Makis Keravnos said the deal gives investigators “the targeted information they need to pursue criminals swiftly.”
The regulation still needs the European Parliament’s opinion, expected in July. After formal Council adoption, the rules enter into force 20 days after publication in the EU’s Official Journal.
This measure builds on a separate agreement from March 2025 that mandated fully digital VAT reporting for cross-border business-to-business transactions by 2030. Taken together, the legislative direction is clear: close the information gaps that fraud depends on, and do it through digitalisation rather than additional bureaucracy.
The Bigger Problem: Europe’s Investment Shortfall
While the VAT vote was the meeting’s cleanest outcome, the longer debate centred on a problem of a different scale. The reports by Mario Draghi and Enrico Letta, which have become the EU’s unofficial economic conscience, put a figure on Europe’s investment shortfall: roughly €750 to €800 billion per year. That is what the bloc needs annually to remain competitive in clean energy, defence, and digital infrastructure. It is not finding it.
Most economists and policymakers now agree the problem is structural. The EU’s capital markets remain fragmented along national lines. Europe still operates through 27 separate systems, each with its own rules, supervisory authorities, and barriers to cross-border investment.
A German retail investor cannot easily put savings into a Portuguese startup. A Polish pension fund still faces regulatory friction when investing in Spanish infrastructure. Europe’s pool of private savings is vast, but the pipes connecting those savings to productive investment remain narrow and clogged.
The Market Integration and Supervision Package
The Commission’s response, unveiled last December, is the Market Integration and Supervision Package (MISP), the centrepiece of the broader Savings and Investments Union (SIU) initiative.
In broad terms, the package would remove barriers to cross-border investment services, simplify the EU capital markets rulebook, and give the European Securities and Markets Authority significantly expanded powers.
Under the proposal, ESMA would assume direct supervisory authority over certain entities with significant cross-border or systemic relevance, as well as all crypto-asset service providers. To handle that expanded remit, the authority would receive a new governance structure. An independent five-member Executive Board would gain the power to take individual supervisory decisions.
That final element is where Tuesday’s debate became more difficult.
Finance ministers broadly endorsed the SIU’s objectives. The European Council had already called in March for agreement on the package by year-end. Yet views on how far to centralise supervision diverged sharply.
Some member states backed ESMA’s enhanced role as proposed. Others argued that the real gains would come from stronger coordination between national supervisors rather than transferring authority to Brussels. Smaller markets, in particular, raised concerns about losing supervisory proximity and the local expertise regulators accumulate over time.
The Council’s note from the session described member states’ views as “mixed,” a diplomatic phrase that masks significant fault lines. Countries with established financial centres — and powerful national supervisors — have clear reasons to resist a shift toward centralisation.
The Cyprus presidency is pushing for political agreement before the end of 2026. That is also the target in the “One Europe, One Market” roadmap endorsed in late April. Whether that timetable holds depends on resolving the most contested issue: ESMA’s new Executive Board and the scope of its direct supervisory powers.
What Connects the Two Debates
Neither of these issues is new. The VAT gap has been an EU priority for years, and EPPO has argued for better data access since becoming operational in 2021. The Capital Markets Union, which the SIU now effectively supersedes, has been an official ambition since 2015 without delivering the integration its architects envisioned.
What has changed is the context.
The geopolitical pressures that followed Russian invasion of Ukraine, combined with renewed trade friction with the United States, have sharpened Europe’s focus on economic resilience. Earlier reform cycles rarely generated this level of urgency.
Billions lost to tax fraud are billions unavailable for defence or the green transition. Savings trapped in fragmented national markets are savings that cannot support the companies expected to close the gap with American and Asian competitors.
The VAT agreement will likely move relatively quickly through the legislative process. Capital markets reform will take longer. It usually does when supervisory architecture and national interests collide.
Still, both issues appeared on the same meeting agenda for the same reason: Europe has concluded that it can no longer afford the cost of its own administrative boundaries.
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