Move to boost capital markets

The first steps in enlarging and creating genuine cross-border capital markets in the EU were announced by the Euroepan Commission with the potential to raise an additional €90bn of funds for business.

Companies have traditionally relied on banks in Europe while the emphasis has been on raising funds from the markets including pension, wealth and other funds.

But with new investment by banks in the EU down by 40% since the crisis in 2008, the EU has identified a capital markets union as one way of boosting demand and growth, and contributing to the faltering single union.

Commissioner Jonathan Hill launched a three-month consultation green paper in Brussels and plans to draw up the next steps, which may or may not include legislation, he said.

The move — one of three steps towards finalising the single market together with energy and digital union— is one of the undertakings given by Jean Claude Juncker to boost growth.

The aim is to build a capital markets union gradually by 2019, and the consultation aims to identify the obstacles and by the summer prepare a action plan with emphasis especially on removing cross-border obstacles, making funds as easily available to SMEs as to larger companies and reducing the costs of raising capital.

Two complementary consultations on high-quality securitisation and on a prospectus directive were also launched. This latter will consider when a prospectus is necessary, what information should be included and how to streamline the approval process.

The securitisation is bound to cause some controversy as it is seen as the weak link that led to sub-prime scandals. This sees the funding together of assets to create a financial instrument in which investors can invest.

Mr Hill said it would aim tonsure high standards, legal certainty and comparability across securitisation instruments though a higher degree of standardisation of products.

Business Europe welcomed the move towards capital union while Finance Watch said it was sceptical about key parts of the plan. It questioned the need to replace banking lending with capital market financing. They warned that reviving securitisation, the capital markets union might promote the model that required a bail-out during the crisis. They also questioned whether it could be a sustainable financing alternative for SMEs.

Britain and Ireland have the most well developed capital markets in the EU.