Last week, the European Commission—the EU’s executive arm—took the first step toward cementing one of the EU’s fundamentals freedoms: free movement of capital. The goal is to break down barriers that block cross-border investments in the EU and prevent businesses from getting adequate access to finance. The EU has launched a green paper as the basis for a three month public consultation on how the Capital Markets Union (CMU) should take shape. Based on public input, the Commission will adopt an Action Plan by this summer that sets out a roadmap and timeline for putting the building blocks of a Capital Markets Union into place by 2019.
Why is this important? Jobs, growth, and investment are vital for Europe’s continued economic health. Creating a true single market for capital will unlock funding for European businesses and boost growth in the EU’s 28 Member States. The current situation is tough for businesses that are heavily reliant on bank financing and less dependent on capital markets. Reliance on bank lending makes the European economy more vulnerable when credit tightens, as was the case during the financial crisis. In other parts of the world, including the United States, the balance between capital markets and bank lending is different. The U.S. venture capital market is about five times bigger than its EU counterpart. If the situation had been reversed during the crisis, EU companies would have been able to tap into an additional 90 billion euros of available funding between 2008 and 2013.
“The direction we need to take is clear: to build a single market for capital from the bottom up, identifying barriers and knocking them down one by one,” according to EU Commissioner Jonathan Hill, responsible for Financial Stability, Financial Services, and Capital Markets Union. “Capital Markets Union is about unlocking liquidity that is abundant, but currently frozen, and putting it to work in support of Europe’s businesses, and particularly SMEs [small and medium-sized enterprises]. The free flow of capital was one of the fundamental principles on which the EU was built. More than fifty years on from the Treaty of Rome, let us seize that opportunity to turn that vision into reality.”
Content compliments of the European Union Delegation to the United States