A single EU market for capital to boost jobs and growth

Businesses in the European Union (EU) tend to be heavily reliant on banks but less so on financial markets* that could also offer sources of funding and, more broadly, boost growth. To help them access these alternative sources of funding, the European Commission has launched a project to develop a European ‘Capital Markets Union’.

ACT

Green Paper - Building a Capital Markets Union (COM(2015) 63 final of 18.2.2015)

SUMMARY

Businesses in the European Union (EU) tend to be heavily reliant on banks but less so on financial markets* that could also offer sources of funding and, more broadly, boost growth. To help them access these alternative sources of funding, the European Commission has launched a project to develop a European ‘Capital Markets Union’.

WHAT DOES THE GREEN PAPER DO?

It lays down the main objectives of the development by 2019 of a Capital Markets Union for the 28 EU countries (1). The paper explores ways to encourage the use of European financial markets and to better integrate them.

KEY POINTS

Objectives

The aim of the Capital Markets Union is to:

• increase alternative sources of funding other than banks for businesses - in particular small and medium-sized enterprises (SMEs) - and infrastructure projects within the EU;
• boost investments across EU countries.

Short-term measures

The Green Paper identifies several areas where there is a need for quick progress.

• 1.

  Building a sustainable European high-quality securitisation market. Securitisation is a financial operation in which loans are pooled together and sold to investors on the markets. One main advantage of this operation is that banks can remove these loans - such as loans to SMEs - and their risks from their balance sheets and then increase their capacity to lend. The aim is to put in place a European framework relying on simple, transparent and standardised securitisation operations.

• 2.

  Facilitating access to capital markets for companies, especially SMEs. One initiative is to review current rules that oblige companies to produce a prospectus* to access capital markets and raise capital. The aim is to ensure that these requirements are not too costly and administratively burdensome for companies or too complex for investors.

• 3.

  Other measures. These include developing European private placement* markets, supporting the take-up of the European Long-term Investment Funds* and taking steps to improve access to SME credit information.

Long-term measures

The Green Paper explores how to overcome various barriers to the development and integration of European capital markets. The challenges include:

• developing and diversifying the supply of funding by attracting institutional, retail and international investors to capital markets;
• improving market effectiveness: obstacles include divergences among EU countries in various areas such as tax, company and insolvency laws.

BACKGROUND

The Capital Markets Union is a core component of the European investment plan launched in November 2014.

For more information, see Capital Markets Union on the European Commission’s website.

KEY TERMS

* Financial markets: markets where buyers and sellers participate in the trading of assets such as bonds, currencies and derivatives (products whose values derive from the value of an underlying asset such as a commodity or currency, e.g. futures and options).

* Prospectus: a detailed document setting out company information and the terms and risks of an investment.

* Private placement: where securities are made available for sale to a restricted number of chosen investors, also known as a ‘private offering’. This is in contrast to a public offering where securities are made available for sale on the open market.

* European Long-term Investment Funds: funds that can invest in long-term or unlisted assets, such as infrastructure or unlisted SMEs. The rules governing them were published in the Official Journal of the European Union in April 2015.

RELATED ACTS

Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee, the Committee of the Regions and the European Investment Bank - An investment plan for Europe (COM(2014) 903 final of 26.11.2014).

last update 11.08.2015

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(1) The United Kingdom withdraws from the European Union and becomes a third country (non-EU country) as of 1 February 2020.