EU moves to create wider risk capital market

The European Commission yesterday launched a major initiative to create the basis for European-wide risk capital markets whose counterparts in the US are seen as being key to success.

The Commission argues that the absence of an equivalent to NASDAQ in Europe, forcing nascent businesses to rely on lending for investment, is one of the key reasons for EU employment sluggishness, and that the launch of the single market provides the WU with a crucial opportunity to redress the deficiency.

The unfulfilled potential, particularly in the high-tech area, "can probably be measured in terms of millions rather than thousands of good jobs", the Commission warns.

"European entrepreneurs must be able to access start-up capital; intermediate and development capital as the company expands; and finally access institutional and private investors supported by a sizeable liquid secondary European stock market where their shares can be traded."

"A number of pernicious barriers - regulatory, economic, fiscal, cultural - need to be addressed as a matter of urgency," the Commission argues in a communication to the member states.

Its approach involves a combination of EU and national legislation, encouraging best practice and networks, and assessment of training and other special needs, in a bid to create an environment for a market-driven solution.

The key requirement, the Commission says, is for a Europe-wide solution as national venture capital markets are incapable of generating a pool of companies to provide diversified investments.

Commission priorities include:

a study of the relative costs of debt and equity finance in Europe

EU legislation to allow venture capital funds to raise capital throughout the union

encouragement to member states to free institutional investors to invest in small firms

changes to EU legislation to allow for multiple quotation by firms on several markets and to provide standardised rules for reporting, a "single passport" approach to prospectuses

reinforced supervisory co-operation

a comparative study of national tax systems to examine for bias in favour of debt income against equity income

assistance to networking by research institutions, entrepreneurs and sources of capital;

a study of the benefits of equity pay and employee ownership schemes

a review of insolvency and bankruptcy law to avoid excessive punishment for failure