At an event hosted today by Finance Watch for Italian media correspondents in Brussels, Head of Policy Analysis, Frédéric Hache, presented Finance Watch’s paper “Capital Markets Union in 5 questions”, which explains why European citizens should be concerned about this medley of initiatives proposed by the Juncker Commission.
Finance Watch not only questions the ability of the Capital Markets Union to foster jobs and growth at small and medium-sized enterprises (SMEs), but also fears that promoting non-bank lending (also called-shadow banking) will create a more fragile financial system. This is problematic as our financial system performs vital functions for the economy and the stability of the financial system is therefore a prerequisite for sustainable growth.
Mr Hache said:
“Our analysis highlights the risk that the Capital Markets Union might weaken the model of retail-funded, traditional, relationship banking that, when carried out by well governed banks, proved the most reliable source of financing for SMEs during and after the crisis. Instead, the Capital Markets Union as currently envisaged would promote alternative financing channels such as securitisation that will likely be too complex and too expensive to benefit most SMEs.”
The SME sector still faces intense problems in accessing finance in many European countries, including Italy (DG Enterprise and Industry 2014 SBA Fact Sheet, Italy). The Capital Markets Union proposal does not seem able to respond effectively to this challenge. Finance Watch also questions the ability of this policy approach to boost consumption, address inequalities and prioritise stable growth over activities that promote speculation.
The European Commission is currently consulting on the proposed framework and aims to implement a Capital Markets Union by 2019. While this may seem far away, the important decisions are being taken now. Finance Watch believes that this very important framework deserves a democratic debate given its impact on European citizens’ lives for the decades to come.
“A missed opportunity to revive “boring” finance?” (pdf, 98 pages) Finance Watch’s position paper on the long term financing initiative, good securitisation and securities financing