Harmonization of capital markets recommended to aid SMEs seeking finance
The need for harmonisation of capital markets used by high-tech SMEs in Europe was highlighted by policymakers at a conference opened by Jacques Santer, President of the European Commission, in November. The conference was held in order to discuss the potential for developing capital markets in Europe which can perform the same job for small, fast-growing firms here as the NASDAQ exchange does for American firms. In the US, NASDAQ provides finance for high-tech companies and, by providing an exit route, encourages the growth of venture capital investment. That money provides smaller firms with the finance they need to grow rapidly. But compared to NASDAQ, Europe's markets are dwarfs. SMEs need truly pan-European markets, corresponding to their global growth potential and able to attract international investors. However, so long as regulations, taxation and culture vary significantly around Europe, they will need local markets that understand their distinct character. The solution, the conference concluded, may be strong harmonisation. The conference heard that markets themselves favour such harmonization, as do investors. Regulatory authorities are already working on harmonising regulation. The recommendations from the conference for national authorities reflect these concerns and if adopted generally would speed harmonisation. There should be fiscal transparency in venture capital funds, the option of stock options for employees (currently ruled out in some legislatures), more liberal rules on bankruptcy and fiscal incentives for investors. In his introduction, President Santer stressed how crucial the development of pan-European risk capital is for Europe's economic future. Peter Sutherland, chairman of BP, stressed in his keynote address that Europe suffers from a competitive deficit (illustrated by the high unemployment rate) due to a philosophical differences over the role of business. Economic and monetary union will be a powerful catalyst, impacting on both equity and bond markets and leading to a more risk-focused Europe. Sutherland was one of a number of participants who was concerned by proposals to harmonise Europe's tax system. He argued the Commission's responsibility is to attack discriminatory taxation systems, not Member States who have general taxation systems which happen to be lower than other Member States. Mario Monti, the Commissioner for the internal market and financial services, replied that the Commission wants to fight against harmful tax competition, not against all forms of tax competition.