Tomorrow's Economy

Supporting investors and growth firms

9 June 2015

A Bottom-Up Approach to a Capital Markets Union

High-growth and innovative firms are the drivers of tomorrow’s jobs and our future prosperity. Supporting these firms, including how they can access finance, should be one of the highest policy priorities of European governments. By seeking to provide deeper pools of capital across the EU for firms and reducing dependence on bank financing, the EU’s proposed Capital Markets Union initiative can make a significant contribution to this agenda.

This publication focuses on how the Capital Markets Union might lead to tangible gains in investment and jobs growth. It is based on a micro analysis of the challenges faced by growth and innovative firms in six large member states. The report proposes a bottom-up policy agenda to complement the EU’s approach, focused on improving the tax, legal and business support environment for investors and firms.

Key findings:

The report warns against major new EU-level initiatives, in keeping with Jean-Claude Juncker’s commitment for the EU to be “big on the big things and small on the small things”. Instead the author’s call for a bottom-up approach focused on reforms at the member state level, including:

  • Encouraging tax incentives for business angel and venture capital investors, and treating this as structural reform so as not to constitute a breach of the EU’s fiscal rules.
  • The European Investment Fund (EIF) should start issuing long-term, low-cost loans to new “small business investment companies” (SBICs), based on a similar, fiscally neutral programme in the US.
  • Minimum insolvency standards should be enforced across the EU with a directive if necessary.

Photo credit: Hadrian /