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EU steps up pressure for rapid deal to revive asset-backed debt
[FRANKFURT] European Union reform of the securitised debt market to help to revive the region's economy is likely to be binding on member countries to speed up change, a senior official from the bloc's executive body said on Tuesday.
The European Commission is due to come up with concrete proposals in late September for a capital markets union or CMU to make it easier for companies in Europe to raise cash from financial markets.
Europe's capital markets, unlike the United States, are fragmented and companies still mainly use banks for borrowing money. Reviving the market for securitised debt or asset-backed securities based on pools of loans like mortgages, is seen as a central plank of CMU.
But the asset-backed market stalled in Europe after being tarnished during the financial crisis when some securitised debt based on US home loans went sour and helped to trigger global market turmoil from 2007.
Commission Vice President Valdis Dombrovskis told EU finance ministers meeting in Brussels that the executive would propose a draft law in the autumn.
Once approved by EU states and the European Parliament, this would be directly binding and would avoid the lengthy process of having to transpose it into national law, which can take years. "We hope we can make substantial progress on securitisation, ideally with a general approach by the end of the year," Mr Dombrovskis said.
An agreement among EU states on a draft law normally takes up to a year so a deal by Christmas would be rapid. "That would be a great way of achieving a short-term element of CMU," Mr Dombrovskis said.
But he also said a proposal to lighten EU rules for companies listing bonds and shares would not be published until November at the earliest, later than some had expected.
European Central Bank Vice President, Vitor Constancio, told ministers that CMU was a very ambitious and difficult project but an opportunity for markets to contribute to sharing risks in an economy that largely relies on banks for funding.
Securitised debt held up better in Europe during the financial crisis with far fewer defaults than in the United States. But it has been slow to recover.
The European Commission has said securitisation of loans to small and medium sized firms was still half pre-crisis levels and could generate 20 billion euros of additional funding.
Luxembourg took over the revolving six-month EU presidency on July 1 and will be responsible for finding agreement among states on financial rules.
Luxembourg's finance minister Pierre Gramegna said the Commission's intention to revive a sidelined proposal for harmonising how companies calculate taxable profits, would also be a priority. "Taxation is going to take a lot of our time here in the council (of finance ministers)," Mr Gramegna told ministers.