IEG: Investment, Growth and Capital Markets Union

TheCityUK is pleased to announce the release of our quarterly report from TheCityUK’s Independent Economists Group, titled Investment, Growth and Capital Markets Union. The report offers a macroeconomic perspective on the likelihood of a Capital Markets Union (CMU) in Europe meeting its aims.

The report examines what drives investment and financing decisions in the EU’s financial markets and how integrating and improving the functions of capital markets might be done most effectively. 

Key findings of the research include:

  • The cost of capital may not be the most important factor explaining investment activity in the EU – other factors, such as uncertainty, may be more important and investment activity may actually be unresponsive to changes in funding costs
  • Bank finance may well remain the most important funding channel for SMEs, so it is important to be realistic about the extent to which non-bank financing initiatives can help this segment of fundraisers
  • The use of capital markets can bring important non-financial as well as financial benefits—for example, by facilitating corporate restructuring
  • Evidence shows that while the rationale for CMU is a perception that certain funding channels are more effective in the US, in practice, total funding for both infrastructure projects and SMEs has been higher in the EU than in the US.  Although there are things that the EU can learn from the US and elsewhere, the aim of CMU should not be simply to adopt a US-style model