Does Europe need its own private placement market?

Louise Bowman
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Private placements have usurped securitization as Europe’s great SME financing hope. The financial markets support EU commissioner Jonathan Hill’s Capital Markets Union initiative to promote it. But the thriving US market will be hard to compete with, let alone replicate. Which leaves two questions: Can the EU build it? And, even if it can, will issuers and investors come?

For an initiative that has yet to truly define itself, Europe’s Capital Markets Union has an awful lot of friends. When The European Commission released its green paper on the topic in mid-February, the market fell over itself to applaud the plan.

Support came from both investors and banks. "Increasing the role that market finance plays in the European economy can diversify the sources, and potentially drive down the cost, of funding to the benefit of European companies and investment projects," enthused BlackRock in an 18-page thesis on CMU.

Goldman Sachs’ top European executives, Richard Gnodde and Michael Sherwood, were moved to publish an article declaring that "Europe needs a market-based financial system that allocates capital efficiently to households and businesses from Lisbon to Ljubljana — and that means it needs not just a banking union, but a capital markets union, too."

The EU Commissioner for Financial Services and Capital Markets Union, Jonathan Hill, clearly has some heightened expectations to meet. His job will not be an enviable one. CMU, left to plot its own course, runs a real danger of being all things to all men. And it cannot possibly expect to deliver on all the aspirations that are being attached to it. No-one disputes the merit of its intent. But the more important matter of how to actually unlock funding to Europe’s businesses and boost growth is far from clear.