Feasible Steps to Finance Innovation in Europe: Six Proposals to Strengthen EU Capital Markets
A report by a Reflection Group convened by the Institute for European Policymaking at Bocconi University
This report, prepared by a Reflection Group convened by the Institute for European Policymaking at Bocconi University comprising representatives from a broad range of financial institutions and other experts, proposes a two-pronged strategy to improve the functioning of European capital markets. Its aim is to contribute to the plans being developed by the European Commission to launch a Savings and Investment Union (SIU)
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Executive Summary
This report, prepared by a Reflection Group convened by the Institute for European Policymaking at Bocconi University, comprising representatives from a broad range of financial institutions and other experts, proposes a two-pronged strategy to improve the functioning of European capital markets.
Its aim is to contribute to the plans being developed by the European Commission to launch a Savings and Investment Union (SIU).
The report builds on two premises. First, past efforts to launch a Capital Markets Union (CMU) have not reached the desired results, partly because they combined broadly agreeable concrete steps to enhance market efficiency and ambitious, wide-ranging institutional reforms, which, no matter what their rationale might have been, could not gather sufficient consensus.
This report builds on the pragmatic assumption that these two elements must be separated: feasible actions to achieve concrete results must come first.
A second premise is that today, more than when CMU was originally conceived, the overriding priority is to unblock the financing of innovative European enterprises with high growth and productivity potential. The rest of the design is more easily implemented gradually at a later time.
Accordingly, the report puts forth six proposals aimed at improving the flow of savings to young, innovative enterprises.
Introducing new individual savings instruments incentivising risk capital investment by individuals with tax advantages, simple investor-friendly schemes, and a flexible choice of legal jurisdiction;
Introducing new defined-contribution voluntary retirement instruments for individuals and employers with tax and regulatory advantages, portability, and dynamic risk profiles;
Launching a new euro-wide IPO instrument offering scale-up companies the full range of pre- and post-IPO services, broad access to EU savings pools and the best available post-trading services;
Removing cross-border obstacles to securities custodians with generalised use of T2S, free access to post-trading locations, and mobility and interoperability among post-trading platforms;
Setting up an innovation-friendly securitisation environment by means of a more market-friendly regulatory treatment and a new private market-making structure, with EIB-EIF support;
Enhancing the EIB Group’s role by facilitating its access to EU savings pools and by having it act as a strategic anchor investor in support of the new securitisation platform.
The six proposals are meant to complement each other and would be most effective if implemented in combination.
However, they would also benefit if enacted partially, in a few countries only, and involving a group of large, wide-reaching financial institutions.
In the second part, the report sketches the contours of broader reforms to complete the design of EU capital markets, which could also be implemented in steps.
In particular, it lists principles that should guide the design of a 28th optional legal regime for companies and securities markets and the further gradual transition of supervisory responsibilities to an EU-wide market supervisor. Finally, the report suggests ways to enhance the EU online informational and financial education platforms.
While this report was readied for publication, the EU Commission published a comprehensive legislative proposal aimed at enhancing market integration as part of its Savings and Investments Union program. An outline of these proposals and a comparison with those made here are contained in Section 2 of this report.
Report Chair: Ignazio Angeloni
Rapporteur: Andrea Cavallini
Ignazio Angeloni
Ignazio Angeloni is a part-time professor at the European University Institute in Florence and a Senior Policy Fellow at the Leibniz Institute for Financial Research SAFE in Frankfurt.
In 2019-2022 he was a Senior Research Fellow in the Harvard Kennedy School’s Mossavar-Rahmani Center for Business and Government. From 2014 to 2019, he was a member of the ECB Supervisory Board.
In 2012-2013, Ignazio was Director General for Financial Stability at the ECB; in that capacity, he coordinated the establishment of the new banking supervision at the ECB.
Earlier, he was Director for International Financial Relations at Italy’s Ministry of Finance, Deputy Director General Research at the ECB, and Director of Monetary Research at the Bank of Italy.
Ignazio holds a degree from Bocconi University and a Ph.D. in Economics from the University of Pennsylvania and has published books and articles in leading academic journals.
He is an IEP@BU fellow.
Andrea Cavallini
Andrea Cavallini is a researcher and rapporteur for the IEP@BU reflection group on European capital markets, chaired by Ignazio Angeloni. He is also a PhD candidate at the Paris School of Economics and a junior research economist at the Banque de France.
His prior experience includes policy and research collaborations with the Finance for Development Lab, the European Space Agency, and the Italian Ministry of Economic Development.
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