Communication from the Commission to the European Parliament and the Council on long-term financing of the European economy

The economic and financial crisis has affected the ability of the financial sector to channel funds to the real economy, in particular to long-term investment. Heavy dependence on bank intermediation, combined with bank deleveraging and reduced investor confidence, has reduced funding to all sectors of the economy. The Union has acted with determination to reverse these trends and restore the conditions for sustainable growth and investment. Public finances have been consolidated and procedures for better coordination of budgetary and economic policies have been put in place. The ECB has acted firmly to restore confidence in the markets, and the establishment of the Banking Union is helping to reduce financial fragmentation and restore trust in the Euro area.

Harnessing these improvements requires long term investment which can underpin smart, sustainable and inclusive growth. The ability of the financial system to channel funds to long-term investments will be essential in securing Europe’s position on a sustainable growth path.

The European Commission adopted on 25 March 2013 a Green Paper on long-term financing, which initiated a broad debate on the different factors that drive the ability of the European economy to attract the funds it needs to sustain and accelerate its recovery. The paper aimed to explore how the savings of governments, corporates and households could be better channelled to long term financing needs.

The Green Paper consultation was very positively received by stakeholders and elicited 292 responses from all segments of the economy. A large majority of stakeholders agreed with the need to broaden the sources of long-term financing in Europe, while recognising the important role that banks will continue to play, particularly for SMEs. While a well-defined and stable regulatory environment was underlined as very important, many stakeholders also called for better calibration of regulatory reform to take account of long-term financing objectives.

The debate on long-term financing has been echoed at European and international level. The Economic and Financial Committee set up a High Level Expert Group, which published its report in December 2013, focused on SMEs and infrastructure. The European Parliament adopted on 26 February 2014 a resolution on the long-term financing of the European economy. The resolution includes many of the issues covered by this Communication.

At the international level, the G20 endorsed in September 2013 a work plan on financing for investment and established a working group to carry out further work on long-term finance. The OECD has developed high-level principles for institutional investors when engaging in long-term financing.

Against this background and building on the Green Paper consultation, this Communication presents a set of concrete actions. Developing and diversifying how long-term investment is financed is a complex and multidimensional task, with no single action or “magic bullet”, but a range of responses and initiatives. The actions proposed in this Communication focus on (i) mobilising private sources of long-term financing, (ii) making better use of public finance, (iii) developing capital markets, (iv) improving SMEs’ access to financing, (v) attracting private finance to infrastructure, and (vi) enhancing the overall environment for sustainable finance.

• Primary Source

EUR-Lex: COM(2014)168: Follow the progress of this communication through the decision-making procedure http://eur-lex.europa.eu/legal-content/EN/HIS/?uri=COM:2014:168:FIN

EUR-Lex: SWD(2014)105: Long-term financing of the European economy http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=SWD:2014:105:FIN

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