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Roadmap for a Capital Markets Union

Posted by Nick Prag at 19 February 2015, 19:00 CET |
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The building blocks of the European Commission's 'Investment Plan for Europe' began to form this week, with the aim of unlocking funding for EU businesses and boosting growth with the creation of a true single market for capital.

First, SMEs and innovative mid-caps currently starved of cash could start to benefit early from first funds under the new European Fund for Strategic Investments (EFSI). A decision of the EIB Board of Governors this week will allow pre-financing of SME projects linked to the Investment Plan for Europe before the summer.

This will be an injection of badly-needed capital for EU smaller businesses.

Second, and more significantly, the Commission has launched its Green Paper on Capital Markets Union (CMU) to create a true single market for capital.

Fragmentation of rules for investors has been a major obstacle to a more favourable investment and economic climate in Europe.

It makes European economies heavily reliant on banks for funding needs, and makes them in turn more vulnerable in bad times to any tightening of bank lending - as happened during the financial crisis.

The priority for this new Juncker Commission has from the beginning.been jobs and growth.

The Capital Markets Union is aimed at breaking down barriers that are blocking cross-border investments in the EU and preventing businesses from getting access to finance.

Eurochambres, the Association of European Chambers of Commerce and Industry, this week gave strong support to the short and medium term objectives of the CMU - driving high-quality securitisation, relaxing capital requirements for investment in infrastructure and streamlining prospectus requirements, plus the long term goal of tackling highly divergent tax and insolvency regimes.

While it is only a Green Paper, Secretary General of Eurochambres Arnaldo Abruzzini says it has the potential “to lead to the establishment of more equity-friendly tax regimes and, in the longer run, to foster a more entrepreneurial culture.”

For Commissioner Jonathan Hill, responsible for Financial Stability, Financial Services and Capital Markets Union, CMU has enormous potential and is “about unlocking liquidity that is abundant, but currently frozen, and putting it to work in support of Europe's businesses, and particularly SMEs.”

While most businesses in Europe find funding traditionally from the banks, with relatively little from the capital markets, the situation elsewhere is the other way round.

The opportunities for a fully functioning single market for capital are significant: if EU venture capital markets were as deep as the US, is is estimated that EUR 90 billion more in funds would have been available to companies between 2008 and 2013.


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Nick Prag

Nick Prag

Nick Prag is founder and managing editor of Prior to EUbusiness, he was senior editor at Europe Online SA in Luxembourg, where he played a major part in the launch of Europe Online International.