In the European tech bubble, not many have heard of the term “capital markets union” (CMU) — but in Brussels, Eurocrats have been talking about it for almost a decade.
This jargon-ish slogan is an umbrella term to describe a set of ideas designed to help unlock additional pools of private capital for EU’s most innovative companies, and to make cross-border investment easier across the bloc.
Progress on the project has been rather slow — partly because EU nation states often don’t want to allow European institutions to decide on things like pensions or taxes, which have always been controlled by domestic law. But, with the European Commission’s new mandate approaching, some politicians are stressing the need to advance the CMU’s work.
“Europe needs more investment, from farming to industry, from digital to strategic technologies but also more investment in people and their skills. This mandate has to be the time of investment. This starts with completing our CMU and mobilising more private financing,” Commission president Ursula von der Leyen said in a speech outlining her priorities for the next five years.
How will it work?
“The idea of the CMU in general is to create these big pools of capital that could fund more long-term, growth-oriented investments,” says Zach Meyers, an assistant director at the Centre for European Reform, a think tank. The first priority of the project, he says, is unlocking more money from private and retail investors.
“In a lot of these (EU’s) countries the capital markets just don’t really exist in the same way: you have far fewer investors who are spending money on equity investments,” he tells Sifted. “ There’s an effort that a lot of countries need to think about, how do you unlock that and get consumers, even households, away from just saving money in the bank?”
He adds that another way of liberating more capital for investment is, for example, by activating money from pension funds — something that’s popular in regions like the Nordics, but less so in other European countries.
The second part, he says, is the “union” part of capital markets. In theory, the European single market should ensure the free flow of capital across the bloc. But, in practice, there are still many obstacles for those who want to benefit from it. In 2023, only 30% of all fundraising in 27 EU countries was cross-border, according to trade association Invest Europe.
“You’ve got a couple of countries that have reasonably good capital markets already. But the problem is that, for a variety of reasons, it’s very difficult for that money to find the best business cases across all of Europe,” Meyers says. “This is because, for example, you have company law that’s completely different in different member states, so you don’t have a consistent approach to things like bankruptcy and insolvency.”
Invest Europe has listed several policy areas that it believes should be tackled by politicians to get things moving. These include widening the existing pan-European venture capital regime (EuVECA) to allow all venture and growth funds supporting startups as well as scaleups to operate more easily cross-border.
Another idea, included in the advisory report on improving the single market drafted earlier this year by former Italian prime minister Enrico Letta and welcomed by the EU startup ecosystem, is to create the so-called “28th regime” of corporate law. This would mean startups fall under pan-European corporate rules rather than national ones.
While there are many ideas like these floating around, what’s been missing so far is the political will to make them a reality.
“This is a long-term project,” says Meyers. “I don’t think there are any quick fixes. It’s a lot of little things that all need to get done, and the results will not be in the time frame of any current politicians — which is often why I think it’s been delayed and not the political priority.”
original: sifted newsletter
We are looking forward to get more insights.