Equity market reform would yield €3.5 trn boost, claims group

Screen graphEurope’s equity markets are “underdeveloped” and weaken the region’s economic potential, a financial markets group says in response to the Capital Markets Union (CMU).

The Association for Financial Markets in Europe (Afme) has called for better functioning equity markets by removing unintended liquidity restrictions, which it says are in current EU regulatory proposals to foster a European equity culture.

In a report called Why equity markets matter, Afme says European equity markets could fund economic growth better than they are doing. The group notes that in the first quarter of 2015, US equity market capitalisation was 159% the size of US GDP, whereas Europe’s was 73.3% of European GDP.

If Europe’s market capitalisation-to-GDP ratio increased to 100%, this could provide a capital boost to European companies of at least €3.5 trillion, Afme says.

Simon Lewis, chief executive of the association, says that this is a perfect time to highlight the benefits of equity markets in Europe, as the European Commission as set out its plan for a Capital Markets Union, with a view to develop and integrate capital markets to generate economic growth.

“We hope our report will help ensure that equity fulfills its potential as a critical source of capital,” says Lewis.

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