19th Mar 2018

EU unveils plan to copy US capital markets model

  • The European Commission wants EU firms to tap the stock and bond markets for finance as part of its blueprint for a capital markets union. (Photo: Alberto Carrasco Casado)

The European Commission set out a road-map to emulate the US venture capital markets on Wednesday (18 February), in an attempt to make it easier for companies to raise money from the stock and bond markets.

Financial services commissioner Jonathan Hill unveiled a Green paper fleshing out the EU executive’s initial plans to create a single market in capital by making it easier to access cross-border investment.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

The commission wants to increase business access to financing for infrastructure projects, cut the cost of raising capital and help smaller companies raise cash as easily as larger firms.

Hill said that despite the free movement of capital being one of the core freedoms of the EU, “we still don't have a fully functioning single market for capital”.

He added that the plan was about "unlocking liquidity that is abundant, but currently frozen, and putting it to work in support of Europe's businesses."

Harmonising the EU’s capital markets by 2019 and increasing the amount of cash European companies raise from the financial markets was one of Jean-Claude Juncker's main pledges during his campaign for the European Commission presidency.

The US venture capital market is about five times bigger than it is in the EU, and US firms generate eight out of ten dollars of investment from financial markets.

In contrast, European firms are reliant on conventional banks, who have become more reluctant to lend in the post-crisis environment, for around 80 percent of their finance. The commission argues that If European venture capital markets were at a similar level of development to their US counterparts, companies would have been able to tap €90 billion of additional funding between 2008 and 2013.

Use of the securities and bond markets, and other complex financial instruments, collapsed in the wake of the 2008-9 financial crisis, which was driven by a collapse in confidence in products known as ‘asset backed securities’ which mixed sub-prime mortgages with other assets.

However, Hill insisted that the commission plan was “not at all to revive the bad old days of the subprime instruments and the unhealthy practices of the past”.

“Our door will remain firmly closed to highly complex, opaque and risky securitisation instruments which caused the crisis,” he said, adding that the blueprint was “not about pushing banks aside, it is about complementing the role of banks”.

The three month consultation will be followed up by an ‘action plan’ and possible legislation later this year. For their part, EU finance ministers will discuss the plans at their meeting in Brussels in April.

The Green paper drew a mixed response.

Doerte Hoeppner, chief executive of private equity and venture capital group, ECVA, welcomed the plan, adding that “the EU should aim to free up the enormous pool of capital sitting with institutional investors."

Accountants’ advocacy group ACCA spokesman Jason Piper said that it would “pay dividends beyond the direct impact on businesses which access the new funding”.

Christophe Nijdam, the secretary general of Finance Watch, warned that “by promoting the investment and universal banking model via a revival of securitisation, the Capital Markets Union might promote the model that required a bail-out”.

Sven Giegold, the economics spokesman for the Green MEPs, commented that “a capital markets union with a one-sided and short-term focus on shareholder value is exactly what the EU doesn't need.”

EU to unveil capital markets plan in 2015

The EU commission will unveil plans to harmonise the bloc's capital markets in 2015 and reduce the reliance of Europe's businesses on bank lending.

SMEs lack support in EU financial plan

The European Commission's plan for a capital markets union is said to be aimed at small and medium-sized enterprises, but many could end up being left out in the cold.

EU endorses controversial finance tool

Commissioner Hill has announced he wants to revive the securitisation market, saying the practice has been "stigmatised" because of the 2008 US sub-prime crisis.

VW dismisses complaints on Dieselgate fix

'I think customers who want to get information (...) are able to receive information if they want," VW management board member Hiltrud Werner told EUobserver. Consumer groups disagree.

Stakeholders' Highlights

  1. Counter BalanceConmtroversial Turkish Azerbaijani Gas Pipeline Gets Major EU Loan
  2. World VisionSyria’s Children ‘At Risk of Never Fully Recovering', New Study Finds
  3. Macedonian Human Rights MovementMeets with US Congress Member to Denounce Anti-Macedonian Name Negotiations
  4. Martens CentreEuropean Defence Union: Time to Aim High?
  5. UNESDAWatch UNESDA’s President Toast Its 60th Anniversary Year
  6. AJC Transatlantic InstituteAJC Condemns MEP Ana Gomes’s Anti-Semitic Remark, Calls for Disciplinary Action
  7. EPSUEU Commissioners Deny 9.8 Million Workers Legal Minimum Standards on Information Rights
  8. ACCAAppropriate Risk Management is Crucial for Effective Strategic Leadership
  9. EPSUWill the Circular Economy be an Economy With no Workers?
  10. European Jewish CongressThe 2018 European Medal of Tolerance Goes to Prince Albert II of Monaco
  11. FiscalNoteGlobal Policy Trends: What to Watch in 2018
  12. Human Rights and Democracy NetworkPromoting Human Rights and Democracy in the Next Eu Multiannual Financial Framework

Latest News

  1. Selmayr case symptomatic, warns EU novel author
  2. Russia poisoning is not EU concern, Germany says
  3. Kiev wants EU sanctions on former German chancellor
  4. North Korea: time to put the 'E' in engagement
  5. Brexit and trade will top This WEEK
  6. Dutch MPs in plan to shut EU website on Russian propaganda
  7. Four years on – but we will not forget illegally-occupied Crimea
  8. Evacuated women from Libya arrive newly-pregnant

Stakeholders' Highlights

  1. Mission of China to the EUDigital Cooperation a Priority for China-EU Relations
  2. ECTACompetition must prevail in the quest for telecoms investment
  3. European Friends of ArmeniaTaking Stock of 30 Years of EU Policy on the Nagorno-Karabakh Conflict: How Can the EU Contribute to Peace?
  4. ILGA EuropeCongratulations Finland!
  5. EUobserverNow Hiring! Sales Associate With 2+ Years Experience
  6. EUobserverNow Hiring! Finance Officer With Accounting Degree or Experience
  7. UNICEFCyclone Season Looms Over 720,000 Rohingya Children in Myanmar & Bangladesh
  8. European Gaming & Betting AssociationEU Court: EU Commission Correct to Issue Guidelines for Online Gambling Services
  9. Mission of China to the EUChina Hopes for More Exchanges With Nordic, Baltic Countries
  10. Macedonian Human Rights MovementCondemns Facebook for Actively Promoting Anti-Macedonian Racism
  11. Nordic Council of MinistersGlobal Seed Vault: Gene Banks Gather to Celebrate 1 Million Seed Collections
  12. CECEIndustry Stakeholders Are Ready to Take the Lead in Digital Construction