© Reuters. European flags fly outside the European Commission headquarters in Brussels, Belgium September 20, 2023. REUTERS/Yves Herman/File Photo
By Huw Jones
LONDON (Reuters) – Private finance has a key role to play in deepening the European Union’s capital market to boost investment, with the bloc’s finance ministers turning to “bottom up” measures for faster progress, Central Bank of Ireland Deputy Governor Derville Rowland said on Thursday.
The bloc has introduced several “top down” reforms in a bid to boost its capital market, but progress has been modest and it continues to lag Wall Street in terms of breadth and depth, and company listings.
Rowland said the push towards a deeper capital market would also focus on “bottom up” measures, such as steps taken at the national level, or initiatives by market participants.
EU officials are sketching out their next set of priorities following European Parliament elections next June and a new European Commission appointed in the autumn.
“The Eurogroup is aiming to identify areas of political consensus for the next European Commission to take forward, while at the same time adopting a more bottom-up approach and facilitating exchanges of best practices,” Rowland said.
Speeding up EU capital market reforms has become more pressing since Brexit as Britain also eases capital market rules to become more globally competitive.
Work on the EU’s Capital Markets Union (CMU) project has largely focused so far on making public markets, such as stock exchanges, more attractive for companies to list on.
“While public markets will continue to be the core driver of CMU activity, private finance has an important role to play,” Rowland said, citing direct lending by investment funds to companies as an alternative to a bank loan.
Publicly listing a company is expensive and generally not an available option for small or medium sized enterprises, she said.
An official at a major asset manager said the EU is realising that large sums of money are needed to finance the bloc’s transition to a net-zero economy, but with little fiscal headroom.
“There is a feeling of banging up against the ceiling. They need to mobilise private capital,” he said, adding that some bottom-up measures were already emerging, such as Italy’s capital markets law, and a green industry law in France.
“There is a realisation that the last two attempts at CMU were very top down. We will see a bottom up approach to CMU, but coordination across the EU is a big challenge,” the official said.
Regulators in Britain and globally, however, have some concerns about whether assets in private markets have valuations that properly reflect the impact of higher interest rates and inflation.
