The report by the Association for Financial Markets in Europe (AFME), “Bridging the growth gap: Investor views on European and US capital markets and how they drive investment and economic growth”, co-written with The Boston Consulting Group (BCG), shows that Europe has a significantly smaller pool of investable assets than the similar sized US economy. But the real problem is the fragmented nature of European markets and the lack of equity finance.
The AFME report draws on a survey of global investors holding around €9tn assets under management and provides a unique, in-depth analysis of how capital markets in Europe and the US compare, and how these differences may have contributed to the wide disparity in growth rates since the financial crisis.
Simon Lewis, Chief Executive of AFME, said: “Under-sized capital markets are limiting growth in Europe, but more important is the lack of risk capital. This is a particular problem for SMEs, where the lack of equity is preventing the development of the entrepreneurial ecosystems that nurture growth sectors such as technology, communications and energy.”
Clare Francis, Head of Global Corporate Banking at Lloyds Bank, said: “Market fragmentation and the different rules and regulations across Europe are holding back the flow of investment capital. We have actively listened to end user needs and acted upon policy-maker concerns about growth.
Key actions
Reduce capital markets fragmentation. This is the main reason preventing investments in Europe, according to the interviewees. This should be addressed by the implementation of specific Capital Markets Union targets for equity capitalisation as well as the percentage of funding provided by capital markets instruments.
Help promote a responsible equity risk culture for all types of equity raising by increasing SME supply and demand for equity – important for the development of entrepreneurship, start-ups and growth expansion.
Facilitate private investment in long-term infrastructure projects by reducing political and regulatory risk and disincentives, and focus government support on projects that would not be viable without it.
Raise the profile and use of Private Placements for loans and bonds, a well-established market in the US.
Full report
Full press release
© AFME
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