01 December 2014

European Commission: Financing Europe's investment

Speech by Vice-President Jyrki Katainen, Conference "Financing Europe's investment and economic growth", Solvay Library, Brussels, 1 December 2014

"There is no need to convince you of the crucial need for investment in Europe, with much written and much said over the previous weeks and months. We are some 15% below where we should be – even allowing for the 'bubble' before the crash.

And yet we all know – and I heard this in London aswell - that there is already ample liquidity in the market. Despite this, investment does not materialise.

How do we explain this clear disconnect? Of course, the banking sector is still dealing with the aftermath of the financial crisis and is therefore inevitably constrained.

And at the same time, non-bank finance has yet to take off in many member states. But I believe more fundamentally, it is mainly due to uncertainty, for example on potential growth or regulatory changes. And this uncertainty leads to excessive risk aversion that still persists among many investors.

We want to address this head-on: the Plan that we are putting forward, by providing first loss guarantees, seeks to unlock the existing liquidity in the market and to deliver the investment boost necessary to generate growth and jobs in Europe.

[...]

So what is the role for finance?

Let me turn now to the financial sector which is well-represented in this room and which has a critical role to play in promoting long-term growth and investment.

Large banks are currently the dominant actors in European finance, so it is critical that bank finance resumes. With the AQR/Stress Test exercise behind us, we are now seeing some encouraging signs of this happening - including in member states sharply hit by the crisis.

But this is not enough. We need more diversity and integration in financing. In this regard, the Capital Markets Union is key.

Our proposal for a Regulation on European Long-term Investment Funds has now been agreed by Parliament and Council. This will provide an EU regulatory framework and passporting rights for funds specialising in long term investments, for example in infrastructure projects or SMEs. This is positive first step.

We also aim to revive high quality securitisation markets and present criteria for simple, transparent and consistent securitisation, building on successful models elsewhere. The mistakes of the pre-crisis period, where complex securitisation led to a lack of information on the underlying portfolio should not be repeated, but securitisation can offer significant benefits to companies.

Furthermore, we will take our information initiative further in the area of credit information on SMEs information on the planning of infrastructure projects as well as on their credit history. A lack of information on SMEs hinders investment, which we aim to rectify.

But a true capital markets union will need more than that and will likely require action beyond the sphere of finance. But what exactly, in what time frame and under which conditions has yet to be determined.

As you know my colleague Jonathan Hill, with whom I work very closely, will launch a public consultation early next year on capital markets union and the results should help us prioritise future actions.

Full speech

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