SJ Berwin comments on European Policy Priorities

13 May 2004

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The European Council Â– which brings together the President of the European Commission and the governments of the 15 member states Â– met last month in Brussels. Comment from SJ Berwin states that the conclusions reached are likely to influence the political direction of the European Union in the months ahead. The law firm outlined that the commitments made four years ago to innovation and entreprenuerialism were reaffirmed by the Council. There was a clear pledge to move ahead quickly and with Â‘determination and confidenceÂ’ on the policy priorities set out in Lisbon in 2000, and a number of those initiatives should benefit Europe's growth companies and their investors.

The European Private Equity and Venture Capital Association (EVCA) has been closely following the progress of this project, and has been able to affect its direction. Ahead of the meeting last month, EVCA restated a number of its views on the way ahead, and those views do appear to have influenced the deliberations of the Council. First, EVCA remains concerned that proposed new capital adequacy rules for banks (the Basel II proposals) would stimulate a retreat by banks from private equity funds. It is crucial that the revised rules do not overestimate the risks of the asset class, and there is good evidence that the current draft does that. Secondly, there is a need for a pan-European fund vehicle to ease the costs and complexity involved in structuring international funds. In addition, the new international accounting rules need to be re-examined to remove the arduous requirement for fund managers to produce misleading consolidated financial statements for their fund vehicles.

To boost innovation, EVCA urges further work to implement a pan-European patent, and to offer fiscal incentives for young companies and risk-takers. Tax allowances for R&D expenditure Â– implemented to good effect in the UK in recent years Â– are also encouraged. One area where the Council made a clear commitment was in relation to red tape. Here, EVCA asked for a reduction in company formation costs and a lower regulatory burden for growth businesses. Increased assessments of the regulatory impact of any additional regulation should assist with this, but EVCA is seeking more action to foster an entrepreneurial culture across Europe, citing statistics which show how far Europe is behind the US in this respect. Changes to bankruptcy law, more focused education programmes and greater awareness of funding possibilities are all needed.

SJ Berwin concluded that there is clear evidence that the institutions of European government, both in Brussels and nationally, are listening more intently to the lobbying of the private equity industry.