New capital markets union strategy to take central role in EU recovery

European Commission Executive Vice-President in charge of Economy and Finance, Valdis Dombrovskis. [European Commission]

The European Commission will outline in the autumn a new package of initiatives to deepen the capital markets union, seen as a key tool to relaunch the EU economy in the aftermath of COVID-19, according to an internal document seen by EURACTIV.com.

EU institutions and member states are working on a “massive” fiscal stimulus to address the deepest recession in the EU history that is set to result from the pandemic.

Coronavirus will trigger the deepest recession in EU history

The economies of EU countries will shrink by 7.4% this year as the coronavirus crisis is set to cause the worst recession in the bloc’s history, according to the European Commission’s spring forecast presented on Wednesday (6 May), which also foresaw a significant rebound in 2021.

In addition, Europe wants to mobilise all the resources at its disposal to kickstart the economy, including its financial markets.

“The capital markets union action plan belongs to the key policies of the Commission and will have extra relevance in the recovery context, to make sure that European companies receive sufficient financing,” reads the EU executive’s updated draft work programme, seen by EURACTIV.

Commission presents piecemeal Capital Markets Union strategy

The European Commission unveiled on Wednesday (30 September) its strategy to strengthen capital markets in Europe, and thus reduce the “very high dependence on bank funding”, as President, Jean-Claude Juncker put it, when he took office last year.

The action plan will follow the first capital markets union strategy released in 2015. The Commission’s goal was to remove national barriers hampering the development of EU-wide financial markets, and reduce dependency on bank financing.

In Europe, half of business financing comes from banks, and European SMEs receive five times less funding from capital markets compared with their US peers.

The new action plan will follow the presentation of the report by the high-level group on capital markets union chaired by former Eurogroup Working Group chief Thomas Wieser, planned for June.

The Commission is aware of the important role that more integrated financial markets could play in the recovery.

“The EU will come out of 2020 with higher debt, which could hold back investment and growth,” said Commission vice-president for financial services, Valdis Dombrovskis, when the EU executive’s latest economic forecast was released on 6 May.

“We should support equity and equity-like investments to protect workers and (the) financial sector. And work harder to create a Capital Markets Union to diversify funding sources for companies,” he wrote on Twitter.

Commission mulls new shield to protect companies against pandemic

As the “unprecedented” coronavirus crisis requires new tools, the European Commission is thinking of creating a new instrument to support companies at risk of insolvency, especially in vulnerable member states, two top officials said on Monday (27 April).

An EU official added that the adoption of the new EU instrument to recapitalise solvent companies would make a well functioning capital markets union even more important.

In the 2014-2019 mandate, an agreement was reached on most of the 13 initiatives put forward by the Commission to start building the capital markets union. It included proposals on venture capital, securities and crowdfunding.

Dombrovskis: 'There is appetite for a pan-European pensions product'

The European Commission will propose a new pan-European personal pension today (29 June). In an interview with journalists, Commission Vice-President Valdis Dombrovskis argues that the new scheme would help save more money in an ageing society.

However, regulatory and other practical obstacles still exist.

Last December, the Council listed some of the issues that the new strategy should address. Among them, member states highlighted that the EU should facilitate further access to finance for businesses, especially SMEs, by reducing SME listing costs and provide them listing support.

They also called for the removal of some structural and legal barriers, for example by harmonising insolvency and corporate laws. 

The Council also asked for more incentives for European savers to invest, by facilitating more information and reducing costs for retail investors.

The new action plan would also factor in UK’s exit from the EU. London was the largest financial hub in the Union and Brexit will reduce the weight and influence that an integrated European market could play.

[Edited by Benjamin Fox]

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