EU in capital market plan

The European Union’s new financial services chief will set out his plans for a pan-European capital market by the middle of next year, aiming to reduce companies’ reliance on banks and help revive the bloc’s fragile economy.

Jonathan Hill, European commissioner for financial services, said yesterday that he was seeking to create an integrated capital market over the next five years and that he also would develop a plan by next summer — following a consultation of banks, lawmakers, and non-governmental organisations.

“We still do not have a fully functioning single market for capital,”the commission told a conference of EU officials and business leaders.

“I will be bringing forward proposals to deliver a capital markets union; a project for all 28 EU member states.”

Channelling more money into small companies is seen as crucial for Europe’s efforts to avoid economic stagnation because small and medium enterprises provide two out of every three private-sector jobs in the EU.

Following the worst financial crisis in a generation, banks are reducing riskier lending to build up capital buffers, a problem in a continent where banks account for 80% of corporate loans.

A capital markets union would mean the EU moving beyond public subsidies and loans to coordinate financing for companies and infrastructure through project bonds, public-private partnerships and infrastructure funds.

However, Deutsche Bank co-CEO Juergen Fitschen said that emulating the US, where capital markets’ funding is far greater than in Europe, would require a shift that Europeans may not be ready for.

The obstacle for smaller companies on capital markets is the challenge of providing continual information to investors, he said.

“The biggest hurdle is the culture of the European entrepreneur,” Fitschen told the conference.

“He is not ready for capital markets because he is not used to answering all these questions.”

The EU is likely to try to support companies by providing such services to investors, although it is not immediately clear how this would work in practice, or who would pay for it.

One idea is a pan-European system of information providers that could specialise in collecting, classifying and analysing data on small- and medium-sized companies for investors.

Reuters