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Juncker seeks to boost confidence in funding for EU businesses

The European Commission yesterday reinforced its commitment to completing the Capital Markets Union (CMU) and pledged to double a fund that will boost investment in European businesses.

In his 2016 State of the Union address, Commission President Jean-Claude Juncker outlined the next steps to be completed by the end of this year, to move the CMU forward. The CMU was announced a year ago and is an important part of the Juncker Commission’s Investment Plan for Europe, which aims to give businesses access to alternative, more diverse sources of funding.

Progress needed by end of 2016

The Commission outlined a three-pronged approach to moving the CMU forwards, comprised of action on securitisation, capital markets rules and venture capital markets/social investments:

  • One of the key actions within the CMU is the securitisation package, which has the potential to generate additional funding in the EU economy, to the tune of €100 billion. Juncker called for urgent progress to be made on this in order to boost financial stability in the EU. s
  • Through the CMU, the Commission also aims to increase access to the capital markets in the EU by the end of 2016, particularly for smaller companies, through a modernisation of the Prospectus rules.
  • Juncker also called for a completion of a proposal to strengthen venture capital markets and social investments by the end of 2016.

European Fund for Strategic Investments to double

The Commission will also increase the European Fund for Strategic Investments (EFSI) to €500 billion by 2020 and to €630 billion by 2022, from the current €315 billion. The EFSI mainly funds cross-border and sustainable business projects.

Next steps for CMU

Juncker also outlined the next short-term steps for the CMU, which includes proposals on:

  • business restructuring and insolvency to speed up recovery of assets and give companies a second chance if they fail the first time around;
  • knocking down tax barriers that are hampering the development of capital markets;
  • encouraging member states to remove withholding tax barriers and encourage best tax practices in promoting venture capital, such as increasing equity financing over debt;
  • the debt-equity bias; and
  • amending insurance and banking legislation by the end of the year, to further unlock private investment in infrastructure and SMEs.

CTMfile take: Considering the slow pace of progress made so far in driving forward the CMU, it would be surprising if the Commission's ambitious plans outlined above can be implemented by the end of this year. Some voices in Brussels have expressed frustration over the CMU's plans for securitisation. However, also considering the EU's negotiations for a Financial Transaction Tax (FTT), which seem to be not yet failed but certainly not looking too healthy either, then it might be fair to say that the Commission really is in need of a success story to boost confidence in the whole EU project.

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Financing Short-Medium Term Deficits

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