Sourcing recovery finance in capital markets
A significant portion of the required financing for the relaunch of the real economy could, and actually should, come from capital markets. The Covid-19 pandemic may prove to be a reason to accelerate taking better advantage of existing capital markets instruments as well as designing new ones. Further to the European Council and the “Joint Roadmap for Recovery” conclusions, which refer to the significant role of the financial sector and to the importance of completing the capital markets union, conditions have matured in order to further explore investment tools for finance enterprises.
Such investment tools already exist at both the European and national level; some are incorporated into the Greek legal framework and are either already being used or can be further improved for better results. It is worth noting that the European legislation can define the general principles and framework for the operation of capital markets instruments while each member-state can further develop its own products. For instance, this is the case with investment funds whose framework for setting the common principles and ways of operation is provisioned by the European legislation while national legislation can further provide for different types of such funds.
The new draft law concerning capital market issues – soon to submitted to the Greek Parliament – includes one of these new types of investment funds (AIF). At the same time, the Hellenic Capital Market Commission (HCMC) is also reviewing other types of funds in order to recommend their adoption by the Ministry of Finance, placing emphasis mostly on types, such as innovation funds, which have performed successfully in other member-states. In countries where such funds have been established, applicable legislation also grants tax incentives (e.g. tax reductions) attached to the amounts earmarked mainly for innovative investments. I refer to “innovation” since this has also become a priority at a European level, as evidenced in the significance given to the “green transition” and “digital transformation.” Greece, in my opinion, should focus on investment in innovation across all business fields. Startups as well as existing entities are in need of innovative characteristics in order to emerge as more competitive and robust at an international level. This is the roadmap that Greece should follow in order to achieve higher employment, obtain more wealth and thus increase tax income.
The world is moving fast and the fourth industrial revolution is upon us. Greece has set a bright example of digital transformation due to the solutions adopted in a short amount of time. We now have two alternatives: Either wait until others move ahead of us and then follow or move rapidly and seek and endorse new opportunities (such as the inspiring initiative of Greek entrepreneurs who started producing medical masks) and solutions (e.g. combining traditional products with new technologies). If we choose the latter, we can acquire a competitive advantage by optimally leveraging new technological solutions.
Supporting Greek enterprises through capital markets is not just an expectation but a feasible process if all market participants focus on how to better use the existing instruments (such as venture capital, European long-term investment funds [ELTIFs] or other special purpose-type funds), thus contributing to efforts to unlock access to finance as well as to design novel, effective investment tools. During the design process, it is important to also explore the possibility of granting incentives that would widen the participation of financial investors in the support of the real economy.
Any new initiative should be consistent with the modernization of the capital markets environment. For this reason it is important that the draft law concerning capital market issues, including amendments to corporate governance legislation, be enacted soon.
Concurrently, we must further investigate the solutions the European institutions put forward to strengthen alternative sources of financing. The HCMC is determined to forge ahead in this direction as capital markets can contribute efficiently toward the country’s emergence from this crisis.
Vassiliki Lazarakou is chair of the Hellenic Capital Market Commission.