James Watson, Director Economics Increasing EU industries, challenges and opportunities- focus on access to finance James Watson, Director Economics Brussels, 12 November2014

Outline Importance of manufacturing Access to finance situation BUSINESSEUROPE access to finance priorities

Industry as backbone of the economy Direct and indirect employment in the manufacturing sector (2012) in 1000 Source: Eurostat (2013), WIOD (2013), calculations by IW 6

Share of global manufacturing value-added EU is losing global manufacturing share Share of global manufacturing value-added Source: UN (2013), OECD (2013), Eurostat (2013), calculations by IW 6

Manufacturing and Employment well below pre-crisis levels

Recommendations for an industrial compact Industrial competitiveness throughout all policy areas ECONOMY ENERGY AND CLIMATE SINGLE MARKET EMPLOYMENT ENTREPREN- EUSHIP TRADE 6

Bank loans to corporations have fallen Result of both demand and supply factors

Corporate bond issuance has risen

Financial fragmentation has eased slightly Eg 3% Germany, Austria, 4% Portugal, > 5% Greece

5 Priorities for access to finance Complete banking union Right balance on prudential regulation Attractive tax environment – no FTT Use public funds to leverage private – EIB Alternative financing routes

The EU continues to lag on Venture Capital funding Venture capital funding (%GDP), 2011 (most cases)

But VC investors may be acting rationally... Average US and UK fund performance Source: Nesta, Unchaining Investment

Conclusion Access to finance problems damaging growth and jobs Likely to become increasing constraints But investment and growth needs an attractive business environment High policy uncertainty an issue High costs of doing business in EU – regulation, energy, tax labour costs