What are long-term investments? According to the Commission these are costs, which increase the productive capacity of the economy: these include among other “energy, transport and communication infrastructures, industrial and service facilities, climate change and eco-innovation technologies, as well as education and research and development.” Hence, not only a material infrastructure has been covered, but also immaterial assets, an argument, which this Green Paper considers compatible with the “Social Investment Package” recently presented by László Andor. For the Commission there is great need of these investments, which form the basis for sustainable growth. However, these investments have to be financed, which – according to the argumentation of the Commission – had not been working satisfactorily since the economic and financial crisis. Hence, the key question would be how one could succeed in making existing savings in the EU more accessible. The ability of the economy to finance these investments would depend on how able the financial system is to channel these funds efficiently and effectively “to the right users and investments through open and competitive markets.“ The mediation process of supply and demand can be carried out via direct access to financial markets or via “intermediaries” such as banks, insurers and pension funds. This applies to businesses and governments, whereby the Green Paper addresses both public and private investments. One of the key questions of the Green Paper is whether Europe should reduce its historically very strong dependence on bank intermediation (75 %) in financing long-term investment and move towards a more diversified system (higher shares of direct capital market financing, greater involvement of institutional investors, but also crowd funding). Another focus is on financing SMEs, as these in the wake of the financial crisis had difficulties – and still have – to get a bank loan. Hence, the Green Paper revolves around some important issues: banking reform, role of development banks, efficiency and supervision of financial markets, possible project bonds, an EU savings book or account, tax systems, accounting principles, corporate governance arrangements and the already mentioned financing problems of SMEs.

Next steps

The issues addressed in the Green Paper are extensive and complex. The 30 questions, which the Commission will submit to the stakeholders for replying within the next three months, shall help to establish which obstacles might exist in respect of long-term financing and what options are available to overcome these. The debate has now been launched and it is up to the social and political actors to decide in which direction the political proposals resulting from the Green Paper will develop. Whilst Olli Rehn, EU Commissioner for Economic and Monetary Policy, should consider long-term investments and financing flexibel enough to increasingly enable financial markets – as it says in a statement – “to support the accelerating structural change”, there is definitely the opportunity for political initiatives, which aim at reducing the dependency of public budgets on financial markets or their increased regulation. The argumentative focus of the Green Paper on long-term financing could initiate such relevant proposals.

Further Information:

Long-term financing of the European economy (preliminary version)