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Brexit makes EU capital markets union ‘more urgent’


©Bloomberg

Brussels is to venture into sensitive areas such as national insolvency laws and tax as it redoubles its efforts to forge a common EU Capital market.

Valdis Dombrovskis, the European commissioner in charge of Financial Services Policy, moved to end speculation that Britain’s vote to leave the EU might spell the end of ambitious plans unveiled two years ago to build a Capital Markets Union, saying instead that Brexit only increased the need for the project.

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“The perspective of the largest EU capital market actually leaving the EU makes this work even more urgent,” Mr Dombrovskis said in an interview with the FT. “In this complicated situation when Europe is facing multiple challenges, it’s important to come up with initiatives where we can show European value-added.”

In a policy paper adopted on Wednesday, the commission set out plans to tackle stubborn barriers to cross-border investment, in the hope that they can become a rallying point for an EU that is searching for direction.

One of the key proposals is to give businesses more of a chance to reach a voluntary agreement with creditors on restructuring their debts before they are declared bankrupt.

The perspective of the largest EU capital market actually leaving the EU makes this work even more urgent

– Valdis Dombrovskis, the European commissioner in charge of financial services policy

The so-called “second chance” plans have been billed by Brussels as a way to prevent needless destruction of value and to encourage entrepreneurs. Mr Dombrovskis said the move, which involves amending national insolvency laws, would address the problem of “fundamentally viable companies” going to the wall because they have run into short-term liquidity problems.

Berlin and other capitals have tended to be very wary of any attempt by Brussels to wade into the area of insolvency law, seeing property rights as a national purview. But Mr Dombrovskis said that he saw support for driving forward the goals of the CMU.

“There will always be discussion on detail, but so far I would say that the progress of Capital Markets Union files is actually better than in many other policy areas,” he said.

Other parts of the policy agenda seek to address situations when a financial trader is unsure of their rights after a counterparty in another EU country fails to honour their obligations.

A previous plan by Brussels to harmonise rules in this area, known as the “securities law directive”, was shelved by the EU commission before ever being published, on concerns it would never win political support from capitals.

It is understood that the new proposals will be more narrowly focused on clarifying which national law should apply in cases where a cross-border trade breaks down.

The commission is also looking to tackle the problem of traders being inadvertently taxed twice on the same trade — an issue linked to how nations apply withholding tax.

Before Britain’s Brexit vote, the Capital Markets Union agenda was seen as a major potential boost to the City of London, as it would make it simpler for financial firms domiciled in the UK to invest throughout the EU. Ironically, the project used to be in the hands of Jonathan Hill, Britain’s former member of the commission, who resigned after the UK referendum.

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Brexit makes EU capital markets union ‘more urgent’

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