Valdis Dombrovskis, European Commission Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, gives us an update on the plans of the European Commission to create a single market for capital in the EU.
Completing the Capital Markets Union will bring opportunities
for savers, investors, and the European financial sector
This year has provided some welcome news: the EU’s economy is growing for the fifth year in a row, and the economies of all Member States are expected to grow this year and next. But we could and should do better. European economies continue to perform below their potential. Although EU employment is now at the highest recorded level, millions are still unemployed. Therefore we must continue with our reform efforts.
The lack of long-term investment in business and infrastructure is one of the main drags on growth. Between 2008 and 2013, investment in Europe shrank considerably, and it is still struggling to recover. European start-ups and SMEs often struggle to get the funding they need to invest, innovate and grow. They find access to stock-markets costly and complex and they can’t easily tap into alternative finance. The ability of banks to be forthcoming with finance is also constrained.
At the same time, EU households have one of the highest savings rates worldwide, saving at least one out of every ten euros earned. But few of these savings are being put to long-term productive use. This is a wasted opportunity: savings held in bank deposits currently earn very low levels of interest and cannot be relied on to alone support future income, such as planning for retirement.
This is why the European Commission is working to unlock these savings and put them to work. In 2015, we launched our project to create a single market for capital in the EU. We want to create the right conditions to unlock funding, so that it can flow from Europe’s savers to Europe’s businesses, and knock down cross-border barriers that block the movement of capital, at all stages of the funding escalator.
We’ve already made big strides towards creating the Capital Markets Union, with a special focus on improving the access to finance for small and growing companies. We recently reached a political deal to improve the regulatory framework for venture capital markets. The new rules aim to expand investment possibilities for funds, broaden the range of eligible managers and simplify administration. These new rules go hand in hand with the Pan-European Venture Capital Fund-of-Funds. We are mobilising up to €400 million from the EU budget for this fund of up to € 1.6 billion, which will soon be up and running. And we are also promoting best practices in national tax incentives for venture capital to foster investment in SMEs and start-up.
For companies looking to tap public markets, we’ve created a simpler, faster and cheaper process with our revised Prospectus Regulation. Recently, EU banks agreed on new high-level principles for quick and constructive feedback to SMEs seeking credit. And at the end of May, the EU reached a deal to restart securitisation markets, which could unlock up to €150 billion of bank lending to households and businesses.
With June’s mid-term review of our Capital Markets Union action plan, we are setting the bar higher and mapping out fresh measures. To give a few examples, we will further ease conditions for SMEs seeking funding on public markets, by alleviating regulatory requirements for listed SMEs. We are considering an EU licensing and pass-porting framework for fintech activities, for our innovative companies to scale up and compete internationally from within a single European market. And we will step up our work to help investors fund the transition to renewable energy by promoting sustainable and green investments.
We are putting forward a proposal to lay the foundations for a European market for voluntary personal pensions. This could provide the economies of scale needed to reduce costs and increase choice for savers who are putting money aside for their retirement. And thanks to their long term horizons, pension funds have the potential to inject more savings into capital markets and channel money to productive investments.
The Capital Markets Union is meant to increase funding options for businesses and strengthen financial resilience. The crisis showed us what happens when you put all your eggs in one basket. Brexit makes this even more important. As Europe’s largest financial centre leaves the single market, the rest of the EU economy needs advanced capital markets more than ever to complement bank lending with other sources of funding.
Since the launch of the project in 2015, we have already delivered on two thirds of the building blocks for a genuine single market for capital. Now we are stepping up our ambition with renewed commitment, and a to-do list from now until 2019.
These are new opportunities for the European financial sector. We hope that all market participants will make use of them and help us build a true Capital Markets Union. And we need to show political will at all levels. We count on Member States, the European Parliament, and everyone with an interest in thriving European capital markets to support this work, so we can help our economy grow and perform at its full potential.