The European Commission (EC) has issued a green paper on building a capital markets union (CMU), which it described as “a flagship initiative” to help the region’s businesses.
The free movement of capital is a long-standing objective of the European Union [EU] – a fundamental freedom which should be at the heart of the single market,” the EC declared.
“Despite the progress that has been made, Europe’s capital markets remain fragmented along national lines and European economies remain heavily reliant on banks for their funding needs. This makes them more vulnerable in bad times to a tightening of bank lending, as happened during the financial crisis.”
The EC described the objectives of CMU as helping businesses tap into more diverse sources of capital from anywhere within the EU, making markets work more efficiently and offering investors and savers additional opportunities to put their money to work, in order to enhance growth and create jobs.
CMU “aims put in place the building blocks of a well regulated and fully functioning Capital Markets Union in the EU by 2019 – creating a single market for capital for all 28 EU member states by removing barriers to cross-border investment and to lower costs of funding within the EU.”
According to the EC “the building blocks of CMU should create a situation where: small and medium-sized enterprises (SMEs) can raise financing more easily than today; costs of investing and access to investment products converge across the EU; obtaining credit through capital markets is increasingly straightforward; and seeking funding in another member state is not impeded by unnecessary legal or supervisory barriers.
“Whilst these changes will help capital markets to play a larger role in channelling financing to the economy, banks will remain key players in capital markets, as issuers, investors and intermediaries. Banks will continue to play a major role in credit intermediation through their role in funding and information provision.”
Among those welcoming the initiative was the Confederation of British Industry (CBI). “Easing the route to vibrant capital markets can help medium-sized firms access the finance they need to invest, scale-up and export,” said Matthew Fell, CBI director for competitive markets.
“Against a backdrop of economic and political uncertainty, it’s right that the Commission focuses on making quick, concrete progress on some of the biggest barriers to capital markets for businesses. Developing a private placement market and supporting high-quality securitisation are good first steps.
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