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Financing of the EU economy - Is the CMU on the right track?

A step in the right direction

By Holle Levin - Director General, Financial Markets Policy, Federal Ministry of Finance, Germany

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The Capital Markets Union action plan encompasses a bundle of promising approaches that can help developing and integrating European capital markets and at the same time foster the financing of companies and investment projects. Due to the diversity of businesses and their funding needs at different stages of their development, there is no single measure that alone can significantly improve the financing situation of European businesses. Therefore, it is right to initiate a process that covers a wide array of tools.

Against the background of the low interest rate environment we noticed that especially the German Schuldschein and corporate bonds developed quite successfully in Germany in the recent past. We therefore welcome the respective initiatives within the Capital Markets Union action plan and believe that they have also much potential for Europe.

In addition, to improve funding for the real economy, especially for SMEs, progress in bank financing is desirable. A simplified regime for small banks specifically adjusted to the needs of financing smaller enterprises at regional level by giving a broader scope to the principle of proportionality, i.e. “a small banking box”, could substantially support bank financing. The Commission’s legislative proposal regarding simple, transparent and standardized securitisation is an important step in the right direction. The securitisation proposal can help to introduce corporate debt to institutional investors beyond the banking sector, leverage banks’ competence in credit analysis and loan origination and free up banks’ capital for new loans by relieving the banks balances.

It is important not only to go after the low hanging fruit but also to strive for measures which go beyond. Therefore, for any measure under the umbrella of the Capital Markets Union to be successful, it will be crucial to have a thorough analysis of the economic situation and the legal context. Coherence and proportionality are key in this respect.