EU Renews Its Capital Markets Push With London on Outside
EU Renews Its Capital Markets Push With London on the Outside
(Bloomberg) --
The European Union will consider new efforts to grow its capital markets now that London, the region’s biggest financial hub, is outside the bloc, according to a document seen by Bloomberg.
The European Commission is planning to remove roadblocks that have hampered the development of a pan-European market with conflicting national regulations and tax and insolvency policies. It intends to present the document next week.
A spokesman for the commission declined to comment.
The commission, the EU’s executive arm, said the need to build up the union’s capabilities has been further underlined by the pandemic, which has put immense pressure on companies to find funds to compensate for hits to their cash flow.
They would benefit from being able to raise more capital in markets, and rely less heavily on the bank loans that have been the mainstay of Europe’s economy.
“Market financing will be the lifeblood that sustains the recovery and future growth over the long term,” the commission said in the document. Brexit “further strengthens the need for the EU to have well-functioning and integrated capital markets.”
The U.K.’s departure means financial firms will lose the ability to freely do business with clients in the rest of the EU once the transition period ends. While the exact nature of the bloc’s relationship with the British finance industry remains to be determined, officials have made it clear that unfettered access won’t continue and that more staff and resources have to be moved inside the bloc.
Moves to get a tighter grip on EU markets advanced on Friday, with London Stock Exchange Group Plc announcing it’s in exclusive talks to sell Borsa Italiana, the country’s main exchange, to Euronext NV and two Italian institutions.
Tax Changes
The commission said it would propose changes to the system of withholding taxes, which is blamed for holding back cross-border investments because it tends to involve lengthy and burdensome procedures for investors to avoid paying taxes twice.
Another challenge that officials are trying to tackle is the harmonization of national insolvency frameworks. Divergent systems make it difficult for investors to predict the outcome in case of a bankruptcy, “rendering it difficult to adequately price the risks,” according to the document.
While the commission has laid out long-term plans for the EU’s capital markets on previous occasions, implementation has often been held back by disagreements among national governments. A proposal to centralize supervision at a common authority was significantly scaled back during political negotiations, for example.
European Central Bank officials renewed their push for a so-called capital markets union earlier this month, pointing out that progress has been slow. The pandemic should be seen as a “wake-up call” to advance the project, Executive Board members Luis de Guindos, Isabel Schnabel and Fabio Panetta said in a blog post.
“The commission would be well advised to make sure that this time, the measures will be applied,” said Markus Ferber, a German member of the European Parliament. “Against the backdrop of Brexit, efficient capital markets are more important for the financing of the real economy than ever.”
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