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Jonathan Hill at Conference on Investing in Long-Term Europe: Re-Launching Fixed, Network and Social Infrastructure
"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.
A couple of figures make the point. We in Europe save lots of money – 2.7 trillion euros worth, one third more than in the US. But mid-sized companies in the US have roughly five times as much funding from capital markets as their counterparts in the EU. EU businesses get about 80% of their financing from banks, and 20% from debt securities. In the US, depending on which set of statistics you are reading, or which statisticians you are talking to, the ratios are broadly speaking the other way round.
At the moment, small business owners here in Italy who want to expand their business are likely to turn to friends and family or the local bank. I want them to have the confidence to explore other options and to have better access to capital markets. This could be achieved through worthwhile private initiatives: the so called ELITE project of the London Stock Exchange/Borsa Italiana group is one such example.
But there are others. Perhaps the Italian small business owner could list his business on an SME growth market, giving access to investors anywhere within the EU? Why should he/she not think of attracting professional investors like venture capitalists or private equity funds?
More than fifty years after the Treaty of Rome, we still don’t have free movement of capital. Shareholders and buyers of corporate debt rarely go beyond their national borders when they invest. Savings are essentially compartmentalised in Member States, and are too concentrated in the banking system. This is holding back the size and depth of capital markets, making it difficult for investors to diversify.
There are a number of obvious reasons for this fragmentation.
There are differing rules, documentation and market practices for products like securitised instruments and private placements.
There is the tax element, with a bias in favour of both corporate debt and mortgage debt.
The national nature of insolvency law.
And investors don’t have access to comparable information on smaller businesses to assess the risk of investing across countries.
But there may be other issues that we need to unpick. That is why I will be launching a broad public consultation early in the New Year. I want to approach this challenge from the bottom up. Identifying problems, sector by sector and country by country, and then working out how we could remedy them.
I will listen to everyone who wants to contribute – parliamentarians, Member States, individuals, consumer groups, and of course the financial sector and its customers. Above all, I want to hear opinions from all 28 Member States because this must be a project for all 28. Once we have had this input, we will come forward with an action plan in the middle of next year."