The concrete outcome of the Commission’s Action Plan for a Capital Markets Union (CMU) consists primarily of a few technical proposals. Notably, it calls for the removal of constraints to facilitate SME financing, e.g. through changes to the prospectus Directive. And it also recognises the need to facilitate infrastructure financing and securitisation through changes to the solvency II Directive and the capital requirements Regulation. However useful these proposals may prove to be, they do not address the main problem in Europe’s capital markets, which lies on the supply side. Expressed simply, European household savings are not finding their way into more rewarding investments, which is caused by a variety of factors that cannot be easily changed.
The aim of the Action Plan indeed is to support efforts to overcome underdevelopment and fragmentation of capital markets in Europe. The plan focuses, in its early actions, largely on providing a greater variety of funding opportunities for start-ups and SMEs, infrastructure financing and securitisation. It was accompanied by three immediate legislative proposals for amendments to the prospectus Directive, the capital requirements Regulation, and the Solvency II Directive.
SME1 financing has been high on the EU agenda for more than a decade. [...] Re-launching securitisation markets is also important, but the question remains whether this will create a truly EU-wide product rather than an EU-wide passport for national portfolios, and whether this can be done without tackling national differences in insolvency laws.
On the other items, the Action Plan calls for further study, consultations and later initiatives. It launches two public consultations on the review of the EuVECA and EuSEF Regulations and an EU-wide framework for covered bonds, and issued a “call for evidence” on the cumulative impact of financial legislation. It will publish a report on long-standing national barriers, e.g. tax barriers, to EU-wide market integration and announced a legislative proposal on business insolvency and early restructuring, both by the end of 2016. But a truly far-reaching proposal is not yet in the cards.
The main problem to be tackled is the overexposure of households to deposits, which do not find their way to the markets. [...]The Action Plan is very timid at this stage on creating a new sizeable EU-wide savings product, while at the same time strengthening the enforcement of the existing fund regulatory framework. The Commission will ‘assess the case’ for such product, without further commitments: “an 'opt in' European Personal Pension product that pension providers could elect to use when offering products across the EU.”
On enforcement, the Commission will cooperate with ESMA to step up country peer pressure. The initial experience of the Single Supervisory Mechanism in the Banking Union can be a useful reference. [...]
Related article in CEPS: Light and shadows in Europe's new Action Plan for Capital Markets Union
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