Restarting European Long-Term Investment Finance: A Green Paper Discussion Document

Alberto Giovannini, Colin Mayer, Stefano Micossi, Carmine Di Noia, Marco Onado, Marco Pagano, Andrea Polo

Persistently low investment is dragging down European economies. This column introduces a new study that examines the symptoms and explores the possible causes of this investment dearth. The study, a ‘Green Paper’ which seeks to delineate the issues and provoke reflection, is the first output of the Assonime-CEPR project ‘Restarting European Long-Term Investment Finance’.

Persistently low growth and investment are a source of deep concern in European economies. This Green Paper – authored by Alberto Giovannini, Colin Mayer, Stefano Micossi, Carmine Di Noia, Marco Onado, Marco Pagano and Andrea Polo – lays out the issues and questions. It has two parts.

Part 1 documents the significant changes in financing patterns of European companies that have occurred over the last few years.

Part 2 analyses the causes of these changes and poses some key research and policy questions that follow from them.

The Green Paper (which can be downloaded here) is the first output of an ongoing project, Restarting European Long-Term Investment Finance (RELTIF), which is a jointly run by CEPR and Assonime, and supported by Emittenti Titoli. It was launched in response to the low level of investment that has been observed across Europe and the policies that have been adopted to deal with it.

The Green Paper records that overall there is little evidence of a shortage of long-term finance for companies with access to bond and stock markets. In fact, the corporate sector has decreased borrowing over the last few years and has become a net provider of funds to the financial system. Small and medium enterprises, however, lack access to finance and there is mounting evidence of a supply of finance problem for these companies.

The Green Paper notes that investment problems may reflect more widespread flaws in the structure and governance of SMEs, large corporations and financial institutions. These mean that differences between supply and demand influences on investment are even harder to identify than previously realised.

These observations have significant implications for policy. There have been a large number of policy responses to promote European corporate financing over the last few years, but they have lacked focus and a clear underlying rationale. The implication of the Green Paper is that responses need to be much more carefully thought through and targeted if they are to address Europe’s growth and investment deficit.

The Paper is designed to stimulate comment and reaction. Led by Professor Colin Mayer of the University of Oxford and CEPR, the RELTIF project seeks to encourage debate about the downturn in long-term investment finance in Europe. Authored by leading economists, the Green Paper invites suggestions from readers about the issues raised in the Paper to help define the next phase of research of the RELTIF project.

In particular, we welcome comments on the following points:

Have we focused on the right set of areas of corporate finance?

Are our descriptions of the facts correct and complete?

Are there other sources of information and data that we have omitted?

Have we described the correct influences on financing patterns?

Are there other factors that we have omitted?

Are we focusing on the right set of policy and research questions?

Are there others that should be included?

We request that any comments on these and other points raised by this document be submitted to Anna Mennella (email: [email protected] cepr.org) by Friday 27 February 2015; please include “RELTIF Green Paper” in the subject line.

The RELTIF project

Restarting European Long-Term Investment Finance (RELTIF) is a joint project organised by CEPR and Assonime, and supported by Emittenti Titoli. It was launched in response to the low level of investment that has been observed across Europe and the policies that have been adopted to deal with it.

CEPR, which takes no institutional positions on economic policy matters, is delighted to provide a platform for an exchange of views on this critical topic.