* Small companies generate 2 in every 3 private-sector jobs
* Crisis has deprived companies of financing, affecting
By Robin Emmott
BRUSSELS, Sept 4 European Union governments are
considering a pan-European market where smaller companies can
raise capital, in an effort to revive the stagnating euro zone
economy, according to a document prepared for a meeting of
finance ministers next week in Italy.
The euro zone's faltering economic recovery will be at the
forefront of discussions at the two-day meeting in Milan from
Sept. 12. With interest rates already at record lows, ministers
are seeking more radical measures to help growth.
One option is a capital-market union, building on the euro
zone's banking union. The aim is to reduce companies' reliance
on banks by establishing the kind of funding offered by U.S.
corporate bond markets.
"A line of action could aim at developing a common European
framework for corporate bonds for issues of smaller amounts by
unlisted firms," said the document, which was obtained by
"Giving visibility to these practices across national
markets would create a wider and more liquid market," the
document said, outlining a potential new asset class for
institutional investors such as pension and mutual funds.
The document also considers "the development of a European
market for private placements" - the sale of securities to a
small number of chosen institutional investors.
"Other forms of intermediation such as debt funds could also
be developed," the document said, referring to funds that invest
part of their assets in loans and bonds of unlisted companies.
In the aftermath of the euro zone debt crisis, small- and
medium-sized companies are competing for scarce funding. Banks
are reducing riskier lending to build up capital buffers, a
problem in a continent where banks account for 80 percent of
In the United States, the proportion is the reverse - up to
70 percent of funding for the economy comes from markets, the
rest from banks.
Smaller companies, often with less than 10 employees,
provide two out of every three private-sector jobs in the
European Union, according to the European Commission. Helping
them to grow is crucial to lowering record joblessness.
Another hangover of the crisis is the differing cost of
financing across the euro zone, or "fragmentation", in a bloc
that aimed to create the same financing conditions for all.
An obstacle for smaller companies on capital markets is the
administrative costs of providing continual information to
investors and the legal costs of going to market.
In Milan, ministers will consider setting up an EU support
service for companies providing such services to companies,
although it was not immediately clear how this would work in
practice, or who would pay for it.
One idea is a pan-European system of information providers
that can specialise in collecting, classifying and analysing
data on small- and medium-sized companies for investors.
The European Central Bank is at the heart of wider efforts
to create a capital markets union by trying to revive
securitisation, or the bundling of loans into bonds to raise
cash for companies to invest.
An integrated European capital market, or capital markets
union, is still a long way off, however.
It depends on the EU moving beyond public subsidies and
loans to coordinate financing for companies and infrastructure
through project bonds, public-private partnerships and
(Reporting by Robin Emmott; Editing by Larry King)