The Capital Markets Union is a European Commission initiative which aims to increase and improve investment channels across the EU.
British commissioner Jonathan Hill is shepherding the project which is said to address small– and medium-sized firms in particular, and will reveal its action plan in September.
The European economy traditionally relies heavily on bank lending as a mean for financing, which dries up during times when the banking sector contracts. There’s a tendency to overlook non-bank lending, preventing some opportunities for venture capitalists, private equity firms and angel investors to invest in companies.
The project’s architects, which regard the two forms of financing as complementary, hope to lower the national boundaries that are hindering investment money to flow freely across European countries.
In September, Jonathan Hill will introduce his action plan and first actions:
1) Simplify the documents that companies are required to produce to raise capital.
2) Revise the laws around securitization to make it simpler and more transparent.
3) Lower the capital requirements for long-term investors.
The project sparked interest amongst numerous financial participants, which include investment banks, savings and retail banks, venture capitalists and think thanks; as all would be affected by the proposal. While politicians support the free movement of capital - and as Mr. Hill underlines: this is one of the four main freedoms at the heart of the EU economy - ECB President Mario Draghi pointed out that it is a very difficult project to implement. French and German finance ministers also sent a joint letter highlighting the fact that they do not want to copy the economic model of the US. Challenges arise since there are 28 different tax regimes in the EU as well as different insolvency and bankruptcy laws.
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