Capital Markets Union:<br>Interview with Commissioner Jonathan Hill

Commissioner, why does the EU need a Capital Markets Union?

The free flow of capital was one of the four fundamental principles on which the European Union was built. But even though progress has been made, fifty years on from the Treaty of Rome, capital markets remain fragmented, largely along national lines. With the crisis, we’ve seen the degree of financial market integration across the EU fall. Banks and investors are increasingly retreating to home markets. Now, with the enormous economic challenges facing Europe, I think the task of building a single market for capital is more urgent than ever. Its aim at its most simple is to link savings with growth by clearing obstacles that are preventing those who need financing from reaching investors.

How do you think the Capital Markets Union will change financing in the EU?

Today, European businesses are heavily reliant on banks and this makes the economy vulnerable to a tightening of bank lending. In some countries outside the EU, businesses get much more funding from markets. Stronger capital markets would not replace banks as a source of financing. But the Capital Markets Union will help grow the overall pot so that everyone benefits and businesses, particularly SMEs, can find more sources of funding. It's about giving choice to companies on where and how they want to get financing. This should also make Europe more attractive to inward investment, and spread risk more effectively than in the past.

So what will some of the concrete benefits of a Capital Markets Union be?

They could be considerable. For instance, if our venture capital markets were as deep as in the US, as much as € 90 billion more in funds would have been available to finance companies and innovation during 2008 to 2013. More than 4,000 additional deals could have been struck. Or to give you another example: even though securitisations of SME loans picked up in 2014 to reach € 36 billion, this is still only roughly half the pre-crisis figure. If the SME securitisation market could be revived safely to take us only halfway back to pre-crisis levels, this could generate some € 20 billion of additional funding.

How does the Capital Markets Union fit into the EU’s broader priorities?

Europe’s number one priority is growth and jobs. To get Europe growing again, we need to unlock investment in our infrastructure and in our companies. The € 315 billion Investment Plan, which the Commission launched in November, will help kick-start that process. But I believe that if we are to really help investment for the long term, then a single market for capital – a Capital Markets Union for all 28 Member States – is vital.

So what are the next steps, Commissioner Hill?

This is going to be a long-term project – it's the cumulative effect of a series of concrete measures which will make the difference. But I can already see how we can make progress early on – encouraging investment and overcoming obstacles. So over the next few months, we will do a number of things. We’re going to set out proposals to encourage high-quality securitisation – which is transparent, simple and safe, thus also freeing up bank balance sheets to lend. We’ll review the Prospectus Directive to make it easier for firms to access markets and reach investors across borders. We will also start work on building a Europe-wide SME database to help get loans to smaller firms by providing better information to investors. We'll encourage the take-up of new European long-term investment funds to channel investment in infrastructure and other long-term projects. So we're going to move as quickly as we can: for our economies, for our democracies, it is imperative that growth returns to Europe. It is up to us to prepare the ground, provide a supply of water, and ensure that when the seeds are planted, they can flourish.

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