Why the City should welcome a Capital Markets Union
I strongly welcome the Capital Markets Union initiative that the Commission launched today.
A Capital Markets Union will not change Europe overnight. But it can create a step change in the availability of finance, provide a new way for businesses to expand, fuel growth and create jobs across Europe and ensure that, should there be another banking crisis, Europe can better weather the storm.
Part of the success behind the speed and trajectory of the US recovery lies in the strength of its capital markets. They allowed the US economy to bounce back more quickly from a financial crisis rooted in the banking system.
We shouldn’t aim to replicate the US economic model. But there is room to expand the role Europe’s capital markets play in supporting businesses and savers. It will make our system more diverse and more resilient, and so better able to support people and the real economy.
CMU should be about reforming the EU financial system to make it easier for businesses to access the finance they need to grow and succeed.
Some of these changes can take place quickly, such as reforming the regulatory framework for securitisations or reducing barriers, which mean it can cost a small business up to £600,000 just to create a prospectus which is required to tap capital markets.
Other issues are more complex, so I welcome Lord Hill's commitment to carry out detailed analysis of the material barriers to a single market in capital. This in turn will help us realise the most effective reforms to achieve it.
To create pan-EU markets, you sometimes need pan-EU rules. But in the past Europe has been too quick to legislate – harmonising first and asking questions later. We should look for the least burdensome approach which has the maximum impact. That means industry-led initiatives and national laws, and using EU legislation only where it is the best tool for the job. And I welcome Commissioner Timmermans’ commitments in this regard.
A lot can be done to stimulate the EU’s capital markets by copying best practice from different countries. Our recent commitment to exempt private placements from withholding tax, which led to six major insurers announcing £9bn of new infrastructure investment over the next five years, is a good example. We can also learn from the development of the French and German private placement markets.
We are Europe’s financial centre, so we have a crucial role to play. But we also have plenty to learn from other countries about innovative ways to encourage capital flows and alternative sources of finance.
The problems being experienced in Europe and other parts of the global economy show that there is no room for complacency. To stimulate growth, we need not just fiscal responsibility and active monetary policy, but also real economic reform.
So it is vital that the EU continues to focus its energy relentlessly on initiatives such as the Capital Markets Union in order to boost growth, create jobs and strengthen the economic security of the EU.