EU ministers give strong support to capital markets union idea
By Jan Strupczewski
RIGA (Reuters) - European Union finance ministers gave strong support on Saturday to the European Commission's proposal of a capital markets union, which would boost economic growth by giving companies wider access to capital across the 28-nation bloc.
Unlike in the United States, where companies rely mainly on shares or bonds to raise money for development, in Europe small and medium-sized firms go primarily to banks to borrow money and do so within national borders.
"There was strong support for what we are trying to do," Valdis Dombrovskis, Commission vice president for the euro, told a news conference after the ministers held their first discussion of the Capital Markets Union (CMU) plan, which was first announced in February.
Europe's financial services market is fragmented, making companies vulnerable to trouble in national banking systems where many banks have been deleveraging to meet stricter capital adequacy ratios since the sovereign debt crisis.
"Stronger capital markets would complement banks as the source of financing. That, in turn, would make the financial system more stable," Dombrovskis said.
A capital markets union could enable a small company in one EU country either to borrow easily from a bank in another EU country or to sell securities across the 28-nation bloc.
"In essence, our task is to find ways of linking businesses and savers to finance growth. We need to identify and then remove barriers that stand between investors' money and investment opportunities," Dombrovskis said.
But this requires the harmonisation of various securities laws across Europe as well as insolvency and bankruptcy laws and tax and accounting standards.
Jonathan Hill, EU head of financial services, has published a long list of possible ways to build the CMU. In June EU finance ministers will decide what should have priority so that the EU executive can prepare an action plan for autumn.
"CMU ... has a potential to give palpable benefits to growth, employment and the resistance of the financial system against shocks," Latvian Finance Minister Janis Reirs, whose country holds the rotating presidency of the EU, told the news conference.
Bruegel, an influential EU affairs think-tank in Brussels, proposed in a paper presented to the ministers that the EU should first focus on a limited number of reforms to maintain momentum in building a capital markets union.
Bruegel also said that plans by 11 euro zone countries for a tax on stock, bond and derivatives trades "may act as a brake on investment, with detrimental economic consequences".
It recommended creating a new office of European Chief Accountant to stamp out national differences in how accounting rules are applied. Company accounts are the basis of information investors use when making decisions.
(Additional reporting by Huw Jones in London and Gederts Gelzis in Riga; Reporting By Jan Strupczewski; editing by Jane Baird)
