Jeremy Woolfe: Brexit and the ‘cuppa’

Jeremy Woolfe laments the EU economy’s being distracted by a humdrum cup of tea

A cup of tea – the Englishman’s beloved ‘cuppa’. Nothing to do with the EU’s cross-border investment prospects? But it has – and quite a lot.

In fact, the EU hierarchy has to take into account anything – anything – that might have the slightest effect on the forthcoming Brexit vote. Sounds daft? But “anything” includes even the drink that cheers but does not inebriate. 

Behind this, it is clear Brussels is running scared of the UK’s in/out referendum. Hence, even the serious matter of the new Prospectus Regulation, an important component in the EU’s Capital Market Union programme, has to be tailored with the Brexit risk in mind. At a presentation of the regulation, self-deprecation by the rule-maker clearly reflected the tone. The Commission has “learned its lesson” (about accusations of over-regulation), senior official Tilman Lueder said at a conference entitled ‘EU Prospectus Regulation: Striking a Balance’.

It is not for the Commission to set up a one-size-fits-all, he stated, as if apologetically. Then he referred to the Commission’s holdback on any rules to limit the wattage of the kettle, used to heat the water for the legendary cuppa. As the story of the ‘hot-button’ issue put out by the Brexit ‘Out’ movement goes, any limit on power and liberty will have to wait at least until after the UK chooses its fate, on 23 June. In other words, the Commission has put its foot on the brake-pedal, which would have prevented electric surges through under-sea cables from Continental Europe into the UK. This can be when the tea-drinkers dive to their kitchen kettles at, say, half-time during a TV broadcast of a football match.

However good that story may be, the likely truth is that the Brussels’s environmental people had no firm plans but were only just thinking about some restraint on the kettle, some of which can be rated up to 2,900 watts. Nevertheless, the new Brussels ‘humble pie’ position certainly does ring true. One Commission source talks of better regulation principles, which “include not taking decisions at EU level that unnecessarily meddle in people’s daily lives”. 

The tone certainly colours official thinking on the Prospectus Regulation, published last 30 November (2015) and now passed on to the European Parliament and the Council of the EU “for discussion and adoption”. The Regulation is to replace the existing Prospectus Directive of 2003 (and with antecedents going back to 1980) to cover when securities are offered to the public or admitted to trading. Describing the proposed reform, the Commission describes it as the “gateway” for issuers to gain access to the European capital markets.

Still, logically, it says the rules will provide investors across the European Union with “the same level of information on companies that want to raise capital. Aligning disclosure standards aims to make it easier to invest cross border”. The Commission goes on to report that the Regulation will enable SMEs “in particular” to find it easier to raise funding when issuing shares or debt. 

Perhaps the new deference to Mr Average Citizen contributed to opportunist protests aired at the conference. Speakers were upset at EU plans for a threshold limit for a prospectus for capital needs below €500,000 (up from €100,000). The Commission says this relief gives “breathing space” for SMEs.

However, an unsatisfied Chris Muyldermans, of bank KBC group, pooh-poohed the threshold. This “should be debated”, she told the conference, organised by QED. She’d like the sum to rise significantly. Rather than relying on the prospectus, when investing, she simply wants to know from an SME prospect what they need the money for, and other basics.

On the same track, Dierdre Somers of the Federation of European Securities Exchanges suggested an SME exemption for any sum less than 10-20% of its capital. And Michael Collins, deputy chief executive and public affairs director at InvestEurope, formerly the EVCA, warned that, “If we want unicorns – i.e. emerging companies with $1bn valuation – in Europe, then we have to be able to fund them, including via equity markets.” 

On the other hand, Arjun Singh-Muchelle of the Investment Association stated: “If you want to play with the big boys, you’d better behave like a big boy.” By this, he meant companies applying for large-scale funding should accept appropriate rules.

Modern man may look back in bewilderment at the Roman Empire’s seeking guidance from chicken entrails prior to battling with the barbarians. He could also marvel at the world’s largest economy being distracted by the humdrum cuppa when striving to put its economy to rights.