However, Commissioner Hill will argue that a harmonised Capital Markets union will make the financial system more stable by taking the pressure off banks and effectively sharing risk, as well as providing more investment from both inside and outside the EU, for the SME sector and long term infrastructure projects.
The Commission said the Capital Markets Union (CMU) is a key pillar of the Investment Plan which aims to tackle investment shortages head-on by increasing and diversifying the funding sources for Europe’s businesses and long-term projects.
The first concrete step in Hill’s proposal is a framework for reviving the so-called asset backed security market.
At the moment, although the European economy is roughly the same size as America’s, US capital markets dwarf their EU peers.
“EU legislation has attempted to establish the regulatory conditions for a successful European Union venture capital sector”, the commission said in comments kicking off a consultation on the changes. “A low-growth environment is not just a threat to financial stability, it’s a broader threat”. “But we are starting fast to build momentum … to work through the biggest barriers one by one”.
European companies tap banks for up to 80 percent of the funds they need to grow, and Brussels hopes its planned reforms will switch a few of this heavy lifting to markets.
“It’s exactly this type of policy action that we need in Europe”, said Wim Mijs, chief executive of the European Banking Federation.
The centre right European People’s Party had their own concerns, with its economics spokesperson German MEP Burchard Balz, warning against copy-pasting USA ideas and stressed that banks must continue to play a central role.
More skeptical observers such as a few financial watchdogs and center-left politicians worry that regulations introduced after the global financial crisis to rein in banks could now be rolled back.
It reckons they should explore alternatives, such as venture capital.
Overall, EUROCHAMBRES believes that the Action Plan has the potential to provide much needed nourishment to the withered post-crisis financial landscape, but only with the strong support of co-legislators and the commitment and effective coordination of national administrations.
Venture capital markets as deep as the United States could have provided an additional €90bn over the past five years, while restarting securitisation markets to pre-crisis levels would provide €100bn of additional funding, and at least €20bn for SMEs.