Last week, the European Commission launched its landmark project to unlock funding for Europe's businesses and to boost growth in the EU's 28 Member States with the creation of a true single market for capital.

The Capital Markets Union aims to break down the barriers that are blocking cross-border investments in the EU and preventing businesses from getting access to finance. The current environment is tough for businesses that remain heavily reliant on banks and relatively less on capital markets. The opposite is true in other parts of the world. One example of the opportunities a fully functioning single market for capital could offer: if EU venture capital markets were as deep as the US, as much as 90 billion euro more in funds would have been available to companies between 2008 and 2013.

With the CMU, the Commission also wants to clear obstacles that are preventing those who need financing from reaching investors and make the system for channelling those funds - the investment chain - as efficient as possible.

On Wednesday, the Commission launched a three-month consultation round, known as a Green Paper, the outcome of which will shape an Action Plan to help unlock non-bank funding so that start-ups can thrive and larger companies can expand further.   

The purpose of the Green Paper on the Capital Markets Union is to kick-start a debate across the EU over the possible measures needed to create a true single market for capital. The Commission is seeking feedback from the European Parliament and the Council, other EU institutions, national parliaments, businesses, the financial sector and all those interested. All stakeholders and interested parties are invited to submit their contributions by 13 May 2015 (see link to consultation:

http://ec.europa.eu/finance/consultations/2015/capital-markets-union/index_en.htm

 

Following the public consultation, the Commission will adopt an Action Plan this summer setting out its roadmap and timeline for putting in place the building blocks of a Capital Markets Union by 2019.  On the basis of the outcome of this consultation, the Commission will identify the actions that are necessary to achieve the following objectives:

• improve access to finance for all businesses and infrastructure projects across Europe;
• help SMEs raise finance as easily as large companies;
• create a single market for capital by removing barrier to cross-border investments;
• diversify the funding of the economy and reduce the cost of raising capital

The Green Paper identifies the following key principles which should underpin a Capital Markets Union:

• it should maximise the benefits of capital markets for the economy, growth and jobs;
• it should create a single market for capital for all 28 Member States by removing barriers to cross-border investment within the EU and fostering stronger connections with global capital markets;
• it should be built on firm foundations of financial stability, with a single rulebook for financial services which is effectively and consistently enforced;
• it should ensure an effective level of investor protection.

Prospectuses are legal documents used by companies to attract investment. They contain facts to help investors make informed investment decisions. But they are also costly and administratively burdensome for companies to produce, often requiring hundreds of pages of detailed information.   The Commission is launching its consultation on the Prospectus Directive with a view to making it easier for companies (including SMEs) to raise capital throughout the EU while ensuring effective investor protection. A key focus will be to reduce the administrative hoops through which companies have to jump.

The Green Paper also seeks views on how to overcome other obstacles to the efficient functioning of markets in the medium- to long-term, including how to reduce the costs of setting up and marketing investment funds across the EU; how to further develop venture capital and private equity; whether targeted measures in the areas of company, insolvency and securities laws as well as taxation could materially contribute to CMU; and the treatment of covered bonds, with a specific consultation in 2015 on a possible EU framework