The European Commission is preparing a series of proposals to drive the capital markets union to facilitate the recovery from the COVID-19 pandemic. One of the most difficult battles will be reducing the differences between national insolvency frameworks.
“The capital markets union can contribute to the recovery by
providing deep, liquid, integrated capital markets”, said commissioner
for Financial Services, Mairead McGuinness on Thursday (15 April).
In 2015, the Commission launched an ambitious plan to bring down
barriers among national capital markets, seeking to reduce the
over-reliance of European businesses on bank financing.
But progress has been disappointing and Europe continues to lack deep and well-integrated capital markets.
Action plan
The Commission and member states agreed on an action plan in late 2020 to give a fresh push to the market integration drive.
The action plan aimed at making funding more accessible to European
companies and support more long-term equity financing, while making the
EU an even safer place for individuals to save and invest long-term.
The European Commission will outline in the autumn a new package of
initiatives to deepen the capital markets union, seen as a key tool to
relaunch the EU economy in the aftermath of COVID-19, according to an
internal document seen by EURACTIV.com.
But “progress has been especially slow in areas governed largely by
national laws, such as non-bank insolvency and company law,” McGuinness
lamented.
Progress toward a more harmonised framework of national insolvency
laws has been highlighted as one of the main outstanding issues by EU
officials and experts.
The issue was discussed again on Friday (16 April) by euro area finance minsters (the Eurogroup).
Eurogroup president, Paschal Donohoe, said after the Eurogroup’s videoconference that “well-functioning insolvency frameworks can
make a big difference for the recovery”. He added that finance
ministers gave their support for adding “non-legislative measures to
help our [insolvency] frameworks]”.
The Eurogroup identified “efficient” insolvency frameworks as an
important instrument for facilitating adjustment processes in the region
back in 2016.
By speeding-up the process to wind down companies, banks can get rid
faster of the bad loans weighing down their balance sheets, improving
financial stability.
As the Commission noted in a paper prepared for the Eurogroup on
Friday, efficient insolvency frameworks “would be beneficial for the
strengthening of the banking union, fostering growth and resilience to
asymmetric shocks, while also contributing to building the capital
markets union”,
Preparatory work
Given their importance, the Eurogroup pointed out in February the
need to strengthen the insolvency frameworks, “in order to ensure swift
and effective action and minimise economic fallout in the aftermath of
the COVID-19 crisis”.
Commissioner for Economy, Paolo Gentiloni, said after the Eurogroup
that the EU executive had started the preparatory work “to identify
areas were convergence in insolvency rules could give tangible
benefits”, without compromising national rules that are working.
In the document circulated to the capitals ahead of the Eurogroup
videoconference, the Commission noted that “national insolvency regimes
across the EU differ in their design and in their practical
implementation” and there is no even a common definition of insolvency.
McGuinness pointed that more harmonised involvency frameworks would
not only strengthen financial stability, but also to attract the
investment badly needed for the European recovery
“Wide divergence in these areas gets in the way of cross-border
investment”, she said, while admitting that “making progress will not be
easy.”
She said that these are “politically sensitive areas”, but added that
these structural issues are “key for making progress in the medium to
long term.”
Other initiatives
The EU executive is determined to progress on the capital markets
union project because “large, integrated capital markets are essential
to deliver our key economic policy objectives”, including building a
more resilient economy after the pandemic and completing the twin green
and digital transitions.
EU regulators and the insurance sector disagree over whether the
review of the rules for the industry (Solvency II) should include higher
capital requirements to deal with risks of interest rate changes, which
insurers say would mean less money to support recovery.
In addition to the ongoing work on insolvency frameworks, the
Commission will review the rules governing the insurance sector
(Solvency II framework) to facilitate long-term and equity investments
by insurers.
It will propose a single access point to provide investors with
seamless access to company information across the EU. The Commission
will also review the framework of European long term investments, to
spur retail investor especially in green and digital projects.
European Commission
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