Summary
DOWNLOAD PDF- Deeper, richer, and more sophisticated capital markets are central for boosting Europe’s competitiveness and prosperity. High-performing capital markets supply all types of firms – big and small – with multiple and varied opportunities to fund themselves and their growth at all stages of development. If Europe develops policies encouraging more savings to be invested in equities, bonds and securities there will be more funding available for EU companies. Importantly, such a development would also improve opportunities for companies to seek funding that is better tailored for their development and growth prospects. As pointed out in Mario Draghi’s report on European competitiveness, better capital-market policies are a key priority for boosting European economic performance.
- A good capital market is an ecology based on many different investment institutions and that is supported by a general business environment that allows businesses to grow and thrive, making them attractive for investment. Consequently, improving European capital markets requires many different types of reforms that make it easier to save, invest, innovate and build businesses in Europe. While the EU can advance such an agenda, it is critically important that reform efforts focus on national governments. The heavy lifting to improve capital markets in Europe will have to be done by national governments. Many governments have already made reforms that have improved outcomes, and other EU countries can learn profoundly from these experiences.
- The European Union is now changing approach. It has recently launched a new strategy for a Savings and Investment Union (SIU) that will succeed the Capital Markets Union (CMU). New initiatives have already been tabled. This is an opportunity to reflect on past achievements and shortcomings, and to advance new policies and targets that forcefully can drive capital market development across the EU.
- The fault lines of capital markets in Europe are known. While European households have a high savings rate, large parts of these savings are invested in real estate or in low-yielding assets that are distant from corporate funding markets. Generally, the market is too dominated by banks, which limits the diversity and resilience of funding sources and leaves firms – especially SMEs – more vulnerable to credit cycles and banking sector stress. What is less known is that there is huge variability between EU Member States – both in capital market performance and policy. In fact, some EU countries like Sweden, Denmark, and the Netherlands have high-performing capital markets that are distinctly different from other EU markets. Obviously, high-performing countries have pursued national capital-market policies that are better suited to achieve the common objectives. While EU-level legislation has so far delivered limited results, national reforms hold considerable untapped potential. If all Member States were able to converge towards the standards and effectiveness of the most dynamic markets, the cumulative effect could transform the EU’s financial landscape – broadening access to capital, increasing cross-border investment, and strengthening the overall resilience and competitiveness of the European economy.
- In the new SIU, the EU should promote national capital-market development and leverage the experience of high-performing European countries. While there are remaining cases for removal of barriers within the EU and a move towards a single market for capital, the reality is that many past harmonisation efforts have failed to move policy or performance much. New strategies are needed – and there are big payoffs if national governments start to progress capital-market reforms that are necessary and that have proven remarkably successful in other EU Member States.
- In this report, we are proposing 10 actions for deeper and better capital markets in the EU. They are all tailored to affect national improvements. We propose a new SIU Scoreboard of seven specific action targets – some are outcome-oriented but most of them reflect policy areas that should be reformed. They include new policies on pensions, investment funds, and public markets – and combine ambitions to raise the volume of capital invested in capital markets with targets for improving access to niche funding, not least for small and high-growth companies.
- Three actions are about EU institutions and the process going forward. We propose a functional role for the SIU – and complement it with a distinct role for the European Semester in national capital-market development, including annual country-specific recommendations. We also propose conditioning access to certain EU funds on capital-market reform.