Divergent insolvency laws in Europe deter investors and remain a fundamental roadblock to an integrated capital markets union, European Union financial chief Jonathan Hill said.
“There are some big structural challenges in terms of insolvency law” that need to be addressed in “a sensible way,” Hill said in a Bloomberg interview on Saturday at the Ambrosetti forum in Cernobbio, Italy. The challenges “are very different from country to country and clearly that has an effect on people’s willingness to invest.”
The European Commission, which seeks to fuel economic growth in the 28-nation bloc by forging a more closely knit capital markets structure, faces a series of barriers from national tax laws to accounting standards. Proposals set to be unveiled in an “action plan” by the end of September will set out steps the EU can follow to create a robust securities market and boost financing for long-term infrastructure projects, according to the commission.
A capital markets union will help Europe’s smaller businesses, who “traditionally” rely on banks for financing, Hill said. It will diversify sources of funding and “knock down” barriers between countries, he said. A CMU would also give alternatives to “big new innovative European businesses” that are going overseas “to the U.S., for example,” the commissioner said.
Insolvency laws remain a key challenge to Hill’s proposals and are difficult to tackle given the diversity among EU members at the national level. The commissioner said he will focus on “more straightforward” issues to “encourage a return to securitization” before looking at “more fundamental issues” such as insolvency.
An easier issue to attack is the prospectus directive. Hill would like to lighten the burden for businesses seeking to raise funds. Streamlining the approval process would make it less costly for businesses to raise funds on capital markets, according to a commission planning document seen by Bloomberg.
“What I’m always keen to do is to strike the best possible balance between financial stability and proper regulation, but to try to do it in a way that doesn’t damage, for instance, liquidity or make it hard for people to make markets,” Hill said.