The European economy is now entering its fourth year of recovery and growth continues at a moderate rate, driven mainly by consumption. In the near term, I expect investment to gradually pick up as well, as demand increases, as businesses put their machinery back to work, and as profits increase thanks to lower energy prices and cheap credit.
The Investment Plan for Europe will also start to have a positive impact on public and private investment. Given these favourable conditions, it is all the more important that our regulation, be it European or national, will not hinder the pick-up in investment. We need to continue removing regulatory barriers.
EU action to bring down barriers
The Investment Plan is working: we have set-up EFSI and it is a success, especially on the SME window. We have more than 100 agreements with financial intermediaries and we have set-up the new technical assistance facilities (with more than 100 requests for investment projects). Now it is the time to tackle the remaining bottlenecks to revive investment in Europe.
To unlock the full potential of investment, we need to continue advancing on the Third pillar of the plan. To my mind, it is the most important. Member States with a better business environment, better public administration, better insolvency frameworks, better innovation structures will be better able to benefit from the plan.
Providing greater regulatory predictability, removing barriers and reinforcing the Single Market are the ultimate objectives of the Third pillar. And this can only be achieved through complementary actions at EU and at country level.
While implementing the EFSI and the advisory hub, we have gathered first-hand information on the effect of these regulatory and non-regulatory barriers that have to be addresses in priority.
The Commission has taken decisive action to address barriers at the EU level this year. To name but a few examples:
With Commissioner Hill, we provided clarity for insurance companies to invest in infrastructure projects under Solvency II and the new rules have just entered into force at the end of last month.
With Commissioner Cretu we have provided guidance and legal certainty on how to combine optimally the opportunities presented by EFSI and other EU funds, like structural funds (that represent a big chunk of the total investment in certain Member States).
My fellow colleague Commissioner Vestager clarified the state aid aspects of the investments within the investment plan and with VP Dombrovskis and Commissioner Moscovici, we have clarified the SGP treatment of investments inside the investment plan.
With Commissioner Thyssen we are clarifying the Eurostat treatment of Public-Private-Partnerships (PPPs). How to take such investments into account on the government balance sheet?
At the same time, we continue our work to boost the Single Market, notably with initiatives to develop the Capital Markets Union (CMU), to further deepen the Single Market in goods and services (with a focus on SMEs and public procurement issues), to create a Digital Single Market, and to establish an Energy Union.
Capital Markets Union and investment
I want to highlight our plans for the Capital Markets Union in particular.
Put simply, the Capital Markets Union will strengthen the link between savings and investment and growth. It will provide more options and better returns for savers and investors. It will offer businesses more funding options at different stages of their development.
The potential benefits are large. For comparison, US equity markets are twice the size of the EU, their debt markets are nearly three times as big, and their SMEs receive five times more funding from capital markets. And if our venture capital markets were as deep, more than EUR 90 billion of funds would have been available to innovative and growing companies.
Developing our capital markets is a way of complementing existing sources of bank funding, not replacing them. The Capital Markets Union is about growing the overall “financial pot” so that everyone can benefit: banks, capital markets, savers and – most importantly for the economy – businesses looking to diversify their sources of funding.
The Capital Markets Union has been well-received by stakeholders – business associations, national and European authorities – because it places the focus firmly on the ultimate purpose of finance, that is allocating excess savings to enable productive investment by business or in infrastructure.
We published our Action Plan in September 2015, and we have already taken decisive steps:
We provided a regulatory framework to revitalise securitisation markets and propose streamlined rules for public offer prospectuses. This will facilitate access to capital for EU companies. It is important that these improvements can be put to work quickly.
We have also just launched a public consultation on insolvency frameworks in the EU. More and more companies and individuals are doing business in other EU countries, taking advantage of the EU’s single market and the free flow of capital. But inefficiency and divergence of insolvency frameworks make it harder for investors to assess credit risk, particularly in cross-border cases. This prevents the integration of capital markets in the EU.
In the near future, the Commission will table a package of measures to stimulate venture capital investment in the EU. We want venture capital and social entrepreneurship fund managers to be able to invest more money, in a wider range of financial products. In addition, we will continue to work with banking and small business representatives to improve communication between business and banks in the case of declined loan applications; identify and then tackle the key barriers to cross border distribution of investment funds; and start work to evaluate the case for EU policy support for a market for European personal pensions.
We are moving at EU level, but national authorities should step up their efforts as well. They need to promote reforms that can really spur investment and growth in the short term and should not be politically that costly.
Therefore, within the 2016 European Semester, we identified the main investment challenges at national level, and proposed actions to address them. The support of Member States will be crucial. These actions are reforms Member States should implement for their own good. By unlocking investment they put their economic recovery on a more sustainable path.
CSRs related to investment
As I mentioned just now, the 2016 Country Reports include an analysis of investment challenges and a first assessment of actions taken so far by each Member State.
The Commission’s stocktaking exercise of the implementation of the Country Specific Recommendations and actions by Member States related to the investment challenges shows that there are wide differences in the progress made to address investment barriers, both across categories of barriers to investment and across groups of countries (Euro Area crisis hit countries, Cohesion countries, and other EU countries).
In terms of categories of barriers the two areas where we see the least progress, are those which generate most of the bottlenecks to investment: “Public Administration/Business environment” and “Sector specific regulations”.
For a better business environment, we should reduce the complexity and low predictability of regulations, and cut regulatory and administrative burdens. An efficient public administration (e.g. public procurement), with a well organised judicial system are important as well.
In services, construction, and network industries, we need to remove entry and other sector specific barriers. This will give new, often innovative, firms a chance.
Finally, the fulfilment of our ex-ante conditionality should help Cohesion countries to put in place a framework that favours investment and ensure that EU funds are used effectively. Ex-ante conditionality in transport, public administration or research is expected to improve the conditions for investment in these areas. Member States have until the end of 2016 to fulfil these conditions and it is important that they continue the efforts made until now.
In terms of groups of countries: the Euro Area countries that were hit by the crisis have been the most active in addressing barriers to investment in 2015. This shows that they continue to adopt and implement reforms. This is valid for all categories of barriers.
The Cohesion countries have taken action to address barriers as well, especially in the area of Public Administration. But they could, and should do more to bring down sector specific barriers and those hindering research, development and innovation.
Finally, in the group of other EU countries (including most of the surplus countries), we see that some actions have been taken to address barriers to investment. But actions have been more limited in the areas of “Public Administration/ Business environment” and “Sector specific regulation”.
The Single Market remains a major catalyst to help Member States’ economies modernise and become more competitive as well as attractive for investors. By removing barriers to the free movement of people, goods, services and capital, the Single Market allows firms to operate on a bigger scale, thereby enhancing their capacity to innovate, invest, become more productive and generate jobs.
In addition to actions taken at EU level, further reforms at national level are also crucial. It is the right time to step up actions and take advantage of the favourable conditions in place for a pick-up in investment.
There is also a large diversity across countries in investment challenges and actions taken so far to address them, and therefore no one-size-fits-all solution.
Priority actions to unlock the full potential of investment in the EU should target those areas with the lowest rate of policy response so far and which generate most of the bottlenecks.
Compliments of the European Commission