12 Financing of the EU economy
| (34835)
8398/13
COM(13) 150
+ ADD 1
| Green Paper: Long term financing of the European Economy
Commission Staff Working Document
|
| Legal base | —
|
| Document originated | 25 March 2013
|
| Deposited in Parliament | 16 April 2013
|
| Department | HM Treasury
|
| Basis of consideration | 6 May 2013
|
| Previous Committee Report | None
|
| Discussion in Council | None planned
|
| Committee's assessment | Politically important
|
| Committee's decision | Not cleared, further information requested
|
The document
12.1 With this Green Paper the Commission sets out for consultation
a series of reflections and questions on the challenges facing
the EU in addressing its large scale, long-term investment needs.
12.2 The Commission describes long-term investment
as the formation of long-lived capital covering tangible assets
(for example energy or transport) and intangible assets (for example
education or research and development). It explains the many benefits
of financing such investments, which it says are important to
support innovation and competitiveness, often have a wider public
benefit and can play an important role in supporting economic
growth and job creation. The Commission also describes the way
these investments allow companies and governments to produce more
with fewer resources, which it says is important given current
social and environmental challenges.
12.3 In the first part of the paper the Commission
is concerned with describing the current challenges facing governments
and businesses in accessing predictable, long term financing to
fund these investments. It states that these challenges have increased
since the onset of the global economic and financial crisis, as
it has become more difficult for the financial sector to direct
savings to long-term investment needs. It also suggests that problems
are particularly acute in the EU, where bank lending has been
a particularly dominant feature of the long-term investment market
and where banks are now more risk averse and less willing to lend
over long-term timescales. A key objective of the Commission with
its Green Paper is to explore ways to diversify lending sources,
such as considering more lending through the capital markets,
including for small and medium sized enterprises. In the paper
the Commission:
- highlights, in relation to
creating the right conditions for long-term investment, the role
of government policies including fiscal policies, tax and the
extent to which there is a business-friendly environment;
- highlights the range of financial regulatory
reform which has taken place since the financial crisis, stressing
the importance for the revised frameworks to strike the appropriate
balance in safeguarding financial stability whilst supporting
growth through lending to the wider economy; and
- explains the particular role and challenges facing
the different key savers, investors and users of long term investments,
focusing on governments, corporates, households and external financing.
12.4 The bulk of the paper is focused on discussing
and raising a series of fairly open questions about the best way
to meet those challenges and how to strengthen capacity to finance
the EU economy over the longer term. The 30 questions are based
around four main headings:
- the capacity of financial institutions
to channel long-term finance, including the role of banks in channelling
financing to long-term investors, the role of national and multilateral
development banks, the role of institutional investors —
for example insurers and pension funds and the overall balance
of prudential rules and impact on long term investment;
- the efficiency and effectiveness of financial
markets to offer long-term financing instruments, including the
role of covered bond and securitisation markets and the scope
for developing an EU project bond market;
- cross-cutting factors enabling long-term saving
and financing including the need for a specific savings account
at EU level, the case for tax reforms and incentives to encourage
long term saving, the case for greater tax coordination at EU
level, the role of accounting principles and corporate governance,
the role of non-financial information disclosure and the role
of benchmarks and credit ratings; and
- the ease of SMEs in accessing bank and non-bank
financing, including how to help SMES access non-bank finance,
for example developing dedicated markets and networks for SMES
and new securitisation instruments for SMEs.
12.5 The Commission calls for responses to the
Green Paper's questions by 25 June and says that it will decide
on appropriate follow-up measures, which could include legislative
measures, on the basis of the consultation.
The Government's view
12.6 The Financial Secretary to the Treasury
(Greg Clark) says that the Government welcomes the Green Paper
and the opportunity to consider the options to meet the EU's long-term
investment needs, including what kind of policy response might
be appropriate.
12.7 The Minister comments further that:
- the policy areas covered in
the paper are extremely wide ranging including financial sector
questions, accounting, tax and policies directed at SMEs;
- the Government believes a number of these issues
should be considered further, and agrees there is a strong case
to diversify sources of long-term financing of the economy and
to move away from over-reliance on bank lending;
- it is particularly keen to explore, for example,
whether further regulatory changes can be made to improve access
to capital markets for SMEs;
- this might include exploring ways to reform regulation,
to make it easier for SMEs to raise finance, whilst maintaining
investor protection, and investigating the development on non-traditional
sources of finance;
- at the same time, the Government also recognises
that policies on many of the issues in the paper have been devised
for various purposes, of which their capacity to support long
term investment may be one, but not always the primary one;
- this points to the need to tread carefully in
undertaking policy reforms, which must be subject to a rigorous
process of impact assessment to ensure that this is proportionate
and to avoid any adverse consequences; and
- the Government notes that the Commission refers
to follow-up work, perhaps including legislative measures —
any such proposals will be carefully evaluated.
12.8 The Minister tells us that the Government
will engage in a dialogue with relevant industry stakeholders
as appropriate and intends to respond to the Commission's consultation
by 25 June.
Conclusion
12.9 Clearly this document raises important
issues (and any proposals resulting from the consultation would
in due course require careful scrutiny). So before considering
the Green Paper again we should like to see the Government's response
to the Commission's questions. Meanwhile the document remains
under scrutiny.
|
