Shines spotlight light on SMEs who benefit from EU financing scheme
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The following video is the first of five videos produced by the European Commission.
The Investment Plan reaches the real economy
Europe needs investment to create jobs, make Euro more competitive, to strengthen the single market and support small businesses. A first major initiative of Jean-Claude Juncker, President of the European Commission is therefore the Investment plan for Europe. In one year time, it mobilised more than €100 billion of investment, with 249 approved transactions via the European Fund for Strategic Investment (EFSI). This money is aimed at projects that find it difficult to secure finance in the market. With more and more projects being chosen each month, the target of mobilising over €315 billion by 2018, is well underway.
Investment Plan flagship project: Ginkgo Fund, Belgium
Investment Plan flagship project: Mymuesli, Germany
Investment Plan flagship project: Dental SME, Czech Republic
Investment Plan flagship project: Smart Meters, UK
As part of the Juncker Commission priority to boost jobs, growth and investment across the European Union, the Capital Markets Union (CMU), a key pillar of the Investment Plan, aims to tackle investment shortages head-on by increasing and diversifying the funding sources for Europe's businesses and long-term projects. The Commission's overall goal for the CMU is to create opportunities for investors, connect finance to the wider economy, and foster a more resilient financial system, with deeper integration and more competition. On 30 September 2015, the Commission adopted an action plan setting out 20 key measures to achieve a single market for capital in Europe. This action is accompanied by a set of initiatives that are part of the action plan
Alongside the action plan, the Commission unveiled a first set of measures to relaunch high-quality securitisation, and to promote long-term investment in infrastructure. In addition, the Commission announced changes to the Prospectus Directive before the end of the year, with a view to making it easier and less expensive for small and medium-sized companies to raise capital.
Capital markets can only complement the role of bank lending. Although the European Commission insists that the CMU will firstly aim at benefitting SMEs, those benefits will be limited to specific market segments such as start-ups or established companies that might be tempted to switch from bank financing to capital markets financing. ESBG is convinced that it would not be in the interest of the European economy – especially in the markets that are strongly based on SME structures like the majority of continental Europe – to favour funding from capital markets over traditional bank lending. Not a policy of substitution but a policy of complementarity should be regarded as the best way forward in order to create a more competitive European Union.
Given the current situation of the real economy, bank lending is a fundamental source of long-term financing, especially for the SME sector. The role of banks is to provide long-term financing and to protect depositors, whereas other intermediaries' – such as asset managers – role is not to protect depositors but to provide returns. If the banks are not assessing or taking the risk for the transformation of deposits into long-term investments, then the saver is directly taking the risks.
Nevertheless, ESBG acknowledges that infrastructure projects can no longer be financed through bank loans only. Economic and regulatory changes have generated the need for new financing models in order to fill the gap between available bank capital and the multi-trillion-euro medium-term investment programmes, especially in Europe. To do so, partnerships between banks and institutional investors should be developed to benefit from the know-how of banks and the investment capacity of institutional investors.
As for access to finance for SMEs, ESBG acknowledges it is best provided by banks and not capital markets, as banks have the deposits that can be transformed into adequate lending, as well as contact with local communities.
>> ESBG position on SME finance