The internal market works for cars or cheese. But Europe’s capital market remains fragmented. In order to promote growth and make Europe more competitive, the Capital Markets Union will be discussed at the EU summit today.
Where do the millions come from? Hanno Renner immediately gives a concrete example in which his own family plays a role. The 34-year-old is CEO and co-founder of Personio.
The start-up offers human resources management software for small and medium-sized companies. Among other things, a Canadian pension fund, which manages the pensions of teachers, has invested in the company. Renner’s parents are also retired teachers, he tells in an interview with ARD Studio Brussels: “I would also bring in a Baden-Württemberg pension fund, but it doesn’t invest in start-ups and growth companies.”
Capital gains often flow abroad
And so, especially in such companies, private capital often comes from abroad – profits flow back there. Particularly in the USA, willingness and expertise are great when it comes to investing in companies with potential.
This is also confirmed by Jan Dzulko, whose company Everphone recently secured a capital injection of 270 million euros. For established and profitable medium-sized companies, the problems are not that big. “But if you’re not making any money yet, you simply won’t find investors in Europe who will invest on that scale.”
More capital for the economy
“Our competitive disadvantage is the capital market, which is not as efficient and is not able to finance future tasks,” said Federal Finance Minister Christian Lindner in Luxembourg last week.
He is hoping that today’s meeting of EU heads of state and government will provide impetus for a project that has been in the planning stages for a long time but is not even close to the finish line: the Capital Markets Union.
The plan is to mobilize significantly more private capital for the EU economy. Lindner’s French counterpart Bruno Le Maire recently put it this way in Berlin: “Without a capital markets union, we will see that our start-ups are born in Berlin, emerge in Paris and grow in Washington, New York or San Francisco.”
France’s Finance Minister Bruno Le Maire also advocates the European Capital Markets Union.
“Key to unlocking private capital”
The Capital Markets Union is an important building block when the heads of state and government talk at the summit table about how the European Union can compete with the USA or China. This affects much more than just start-ups.
“Deepening the Capital Markets Union is the key to unlocking private capital,” says a draft of the summit’s final text. This helps to address the challenges, “in particular the green and digital transition and the needs of the European defense industry.”
The internal market in the EU works when it comes to cars or cheese. So far there have only been common goals in the capital market. Chancellor Olaf Scholz speaks of the “crucial resource for future growth”.
Italy’s former Prime Minister Enrico Letta presented a long report on the future of the internal market to the summit.
The European capital market is fragmented
Former Italian Prime Minister Enrico Letta presented a long report on the future of the internal market to the summit. It says that the EU is home to 33 trillion euros in private savings alone.
But this money must also end up with companies where it is needed. And there are still many hurdles that need to be overcome in implementing a capital markets union. The European capital market is perceived as fragmented. Different regulations apply in every country.
Bundesbank President Joachim Nagel, for example, said: “It deters foreign investors when an economic area like the EU has 27 different insolvency regulations.” This describes the problem.
But who is prepared to harmonize their national regulations and restrict or give up sovereignty? For a possible capital markets union, there are different ideas about how centralized supervision should be.
Bundesbank President Joachim Nagel said it deters foreign investors when an economic area like the EU has 27 different insolvency regulations.
When will the reform come?
It would be unusual if the heads of state and government at the EU summit delved into the technical depths of the Capital Markets Union. This work lies with finance ministers.
However, the chairwoman of the start-up association, Verena Pausder, is counting on the project to make progress: “Without greater investment in innovations, Europe will not only lose touch with the USA and China in terms of technology, we will also lose our growth prospects.”
Personio sees itself as a company with European roots and “with a strong connection to Europe”. But CEO Renner also says: “In order to stay that way – even if we go public in the next few years – we need reforms to our capital market.”
Dzulko from Everphone points out that start-ups think in significantly shorter time frames than politicians: “I’m more likely to observe this than to incorporate it into my plans in any way.”