Market Analysis

France is advocating for a renewed effort to integrate the European Union's fragmented capital markets, aiming to provide the scale necessary to reduce reliance on dominant U.S. venture capital within its burgeoning startup sector, according to ministers, CEOs, and investors.

The current patchwork of local regulations and oversight across Europe has resulted in financial markets largely confined by national borders, hindering the development of deep capital markets comparable to those in the United States.

Startups throughout the European Union, including France, often turn to U.S. venture capital to fund their growth due to a shortage of significant domestic investors.

While U.S. funding is welcomed, there's a consensus that Europe is missing out on a substantial opportunity, as highlighted by Matthieu Rouif, CEO of French startup Photoroom. He emphasized the significant wealth generated from tech innovation over the past two decades and the importance of Europeans gaining access to it.

The dominance of U.S.-based venture capital firms, which collectively raise much larger sums than their European counterparts, underscores the urgency for Europe to act.

To address this gap, the French government is urging the next European Commission to prioritize reviving plans for a European capital markets union, which would harmonize financial regulations and supervision across the EU.

Despite growing support among EU governments in principle, some remain hesitant to relinquish regulatory control over their financial markets.

French Finance Minister Bruno Le Maire stressed the importance of swift action, highlighting the case of Mistral AI, a French tech firm in need of significant funding within the next six months. Le Maire warned that without progress on the capital markets union, companies like Mistral may seek funding elsewhere.

One proposed solution involves greater involvement of public sector investors, such as the European Investment Bank, in financing startups by assuming more risk than private investors, as suggested by Bank of France Governor Francois Villeroy de Galhau.

A unified European market would also incentivize European venture capital firms to list the companies they support in Europe rather than in the United States, providing stability and liquidity.

The goal is to establish Europe as an attractive destination for startups and investors alike, fostering growth and innovation within the continent's tech ecosystem.

Paraphrasing text from "Reuters" all rights reserved by the original author.