On 18 July, the New Hanseatic League published a joint statement…
The ‘New Hanseatic League’ is a moniker that has been adopted by a cadre of finance ministers from eight European states, who have formed an association around a range of shared interests in the field of economic policy.
Through their ministers, the eight states – Denmark, Estonia, Finland, Ireland, Latvia, Lithuania, the Netherlands and Sweden – have turned themselves into a lobbying force at the heart of the EU, dedicated to chivvying along initiatives from which they stand to benefit.
In that sense, they are the polar opposite of Eurosceptic. They want the EU to do well and to ensure that its achievements are felt across each and every member state. In June, they published a position paper outlining their views, which is well worth reading. They even have a Twitter account.
Great! So, on 18 July, the New Hanseatic League published a joint statement urging the European Commission to make a concerted effort to speed up Capital Markets Union (CMU) – a flagship initiative built around an Action Plan designed to improve not just the availability of capital to EU borrowers, but the systems through which it is delivered, too.
Measures encompassed in the Action Plan include:
All of which aims to create a more fertile climate for innovation within established companies, while opening up funding avenues for non-listed firms and start-ups. The essential thinking behind CMU is that the EU should move away from a fragmentary system, in which market flows are largely at the behest of individual member states’ laws.
In the League’s view, the project is going extremely well. In their joint statement, the eight states note: “CMU has already delivered in a number of targeted ways – such as amending Europe’s prospectus and securitisation frameworks, facilitating venture capital funds’ investment in start-ups and SMEs by amending the European Venture Capital Funds (EuVECA) and seeking to promote financial knowledge via the work of the Sub-Group on Financial Literacy.”
In a word – and it will be a familiar one – Brexit.
The League’s statement tips a hat to views expressed by the Commission’s financial stability guru Valdis Dombrovskis, noting: “[he] has highlighted that the prospect of Europe's largest financial centre leaving the EU makes our task more challenging, but all the more important.
“The UK’s decision to leave the EU, while regrettable, must act as a catalyst to redouble our efforts in further developing and integrating EU capital markets.”
The League points out: “Taking account of the EU political and institutional cycle, time is not on our side, and so we must set an ambitious target and prioritise. This means that we should focus our resources on those outstanding parts of the CMU Action Plan with the largest impact, which enjoy broad support among Member States and can be completed quickly.
“This includes the Investment Firms Review, which will implement a more proportionate regulatory regime for investment firms, and the proposed framework for covered bonds – which would enhance their use as a stable and cost-effective source of funding for credit institutions to help finance the real economy.”
It adds: “Proposals that help provide financing to European companies that actively contribute to a low-carbon and environmentally resilient economy and sustainable development must also be advanced. In that regard, accessible and comparable information about sustainability aspects for investors is crucial.
“We also have to make sure that the financial industry becomes aware of the risks related to climate change and the necessary transition to a sustainable economy.”
That question has already been eloquently considered by the Centre for International Governance Innovation (CIGI), a global think tank that critiques, and shares knowledge about, landmark policy initiatives, such as CMU.
In an August 2017 analysis of the project, CIGI senior fellow Miranda Xafa writes: “While the UK’s eventual departure from the EU makes CMU more urgent, it also represents a clear setback in view of the dominance of the City of London as Europe’s financial centre.
“Near term, the Brexit vote appears to have slowed the implementation of the Action Plan, as the attention of European institutions has shifted towards managing the future relationship with the UK.”
Xafa notes: “Brexit could have profound effects on the UK financial system, its status as a global hub and its contribution to the economy. Exit from the EU will almost certainly reduce the market access of UK-based financial institutions to the EU market, subject them to regulatory uncertainty, while the final status is under negotiation and force them to re-examine their corporate structure and location.”
She adds: “The final result depends on Britain’s relationship with the EU and other jurisdictions post-exit, and on how financial institutions and markets adjust to the new circumstances.”
Matt Packer is a freelance business, finance and leadership journalist