04 February 2015

European Commission: Finance at your service – capital markets union as an instrument of sustainable growth

Jonathan Hill, Commissioner for Financial Stability, Financial Services and Capital Markets Union, at Finance Watch Conference: "The long-term financing agenda – the way to sustainable growth?"

"We need to remain focused on the threats to financial stability because financial stability remains the prerequisite to growth. That is why I am committed to finalising rules on Bank Structural Reform, money market funds and benchmarks, and to bringing forward new proposals to deal with risks arising from entities other than banks when they need to be resolved.

But I think we must recognise that the nature of the threat we face has changed. Today, the lack of growth is the biggest threat to stability. GDP growth across the EU is anaemic: only 0.3%. There are nearly 25 million people unemployed. In many countries, there are genuine fears for a lost generation. And where the lack of growth and opportunity persists a sense of hopelessness is creating a deeply worrying and corrosive cynicism about the ability of democratic politics to deliver. So there is not only an economic but a democratic imperative to get our economies growing again. To build trust and restore hope for 500 million Europeans.

So we need both financial stability and growth: we need sustainable growth.

That is the new Commission's number one priority. It is why President Juncker's first act as Commission President was to launch the 315 billion euro Investment Plan. We all know that jobs and growth will come from the single market and trade, not from politicians. But this plan can help by taking away some of the risk of investing in long-term projects; by supporting viable projects that might otherwise not have found investment; and by encouraging Member States to remove red tape, regulatory bottlenecks and other barriers to investment. Providing the right conditions for the economy to get moving again.

The relentless focus on jobs and growth also determines how I approach the decisions it's my job to take. I will look at all regulation through the prism of jobs and growth. Given that the worst of the financial crisis is behind us, we should not expect to have to legislate so much in the future: you should not anticipate anything like the volume of new legislation that the crisis called for. And after those five busy years of trying to 'moor the boat in a storm', we should also ask ourselves: have we always struck the right balance between reducing risk and encouraging growth? If the evidence tells us that we haven’t always got it right, if the rules are not proportionate to the risks presented by different types of operator, then we should be ready to look at regulation again.

How can I in my mandate help to achieve that? How can financial services contribute to growth? I think there are two important ways in which they can help.

The first is through a sound and stable banking system; one that is able to lend, keep people's savings secure, process payments and generally deliver the services that consumers and businesses need every day. A huge amount of work has already been done to make sure that the right framework is in place to make that happen.

I will continue to work hard to make sure that things stay on the right track. This means delivering detailed rules so that the reforms of the banking sector can be put into practice in day-to-day operations. And looking at how the rules are being implemented and applied on the ground.

I want to ensure compliance does not become a box-ticking exercise but a real change in culture. And, if we find wrongdoing; if professionals are found to have defrauded or deliberately misled unsuspecting customers, the system should come down on them like a ton of bricks.

The second way is through well-functioning capital markets. These can spur growth through boosting confidence in Europe as a place to invest.

Well-functioning capital markets also help encourage greater diversity in funding, which reduces concentration of risk so they not only free up capital for growth but also support and strengthen financial stability.

After all, it's important to remember that "capital markets" are not some abstract construct – they are someone's pension savings, someone's 'rainy day' money which is channelled to growth.

Capital Markets Union: what is it (and what is it not)?

Building a single market for capital will help money flow through the EU to where it can be most productive. Its aim at its most simple is to link savings with growth. This is a project for all 28 Member States.

My ambition is to help unlock the capital around Europe that is currently frozen and put it to work in support of Europe's businesses, particularly SMEs.

I'd like to explain to you briefly what capital markets union is intended to be. And, perhaps equally, what it is not.

With the Capital Markets Union, we want to remove the barriers that stand between investors' money and investment opportunities; clear obstacles that are preventing those who need financing from reaching investors; and make the system for channelling those funds – the investment chain – as efficient as possible.

Free movement of capital was one of the four fundamental principles on which the European Union was built. But fifty years on from the Treaty of Rome, we still don't have a fully functioning single market for capital. The market remains fragmented, largely along national lines. Overcoming that fragmentation could have significant benefits.

Just to take one example, if our venture capital markets were as deep as the US, as much as 90 billion euro more in funds would have been available to companies in the period between 2008 and 2013. Think of all the innovation that that could have sparked; all the new products and services that could have been dreamed up; all the new jobs that could have been created if that funding had been there.

So our goal with the Capital Markets Union is to make Europe more attractive to inward investment. We also want to create more financing opportunities for SMEs and infrastructure projects. Spread risk more effectively to those who can bear it. And deepen integration across borders within the EU, increasing competition."

Full speech

© European Commission