Baltic states agree to set up joint capital markets

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Finance Ministers of the three Baltic states on November 6 signed an agreement to create a pan-Baltic capital market to strengthen their economies and stimulate investment, with support of the European Commission (EC) and the European Bank for Reconstruction and Development (EBRD).

The Ministers of Finance of Estonia, Latvia and Lithuania – Toomas Tõniste for Estonia, Dana Reizniece-Ozola for Latvia and Vilius Šapoka for Lithuania – signed a Memorandum of Understanding (MoU) in Brussels in which the parties agree to harmonize capital market regulations and dismantle investment barriers, the Latvian Finance Ministry said in a statement.

"The goal of the initiative is to attract investment through the creation of a common capital market by combining the strengths of the three Baltic states and overcoming the constraints they often face due to their limited size," the ministry said.

The signing took place in the presence of European Commission Vice-President Valdis Dombrovskis and EBRD Vice President Pierre Heilbronn.

The three states agree to work together on the design and implementation of the necessary measures, including the establishment and improvement of the underlying legal framework, the introduction of new instruments (for instance, covered bonds and securitisation) and the creation of the necessary market infrastructure.

One of the first projects under the agreement is the creation of a legal framework for a pan-Baltic covered bond. The work on this project is done in cooperation with the EBRD and the European Commission’s Structural Reform Support Service (SRSS).

For further progress the parties will adopt a detailed action plan based on the priorities and possible areas of cooperation as set out in the MoU. They also agree to create a steering committee representing the governments of Estonia, Latvia and Lithuania to oversee progress in the implementation of the measures underpinning the Baltic capital markets. No deadlines have been set yet.

Latvia’s Minister of Finance Dana Reizniece-Ozola said: “Our common efforts will ensure significant economic benefits, for instance, a pan-Baltic asset class in covered bonds is more likely to be attractive for international investors thus improving the available funding options for the local capital market. We also expect to multiply the number of new IPOs in our equity market, and mobilize our local investment by pension funds and other institutional investors. All measures together should lead to the long-term objective achieving the emerging market status that would further facilitate capital inflow and deepen access to finance.”

European Commission Vice-President and former Latvian Prime Minister Valdis Dombrovskis, who is responsible for the Euro and Social Dialogue said:

"I welcome today's agreement among the three Baltic states to developing common capital markets – it is another step on the road to creating a Capital Markets Union. The Commission fully supports regional initiatives to facilitate cross-border investments and integrate member states' capital markets. Our Structural Reform Support Service stands ready to step up its support for reforms that modernise economies, strengthen competitiveness, and encourage investment and looks forward to working with the three Baltic states on the creation of new instruments in the region."

Under the Capital Markets Union initiative, the The Structural Reform Support Programme – in place since May 2017 - has allowed the European Commission to increase the level of technical support that it provides in the area of capital markets development, supporting among others the creation of a legal framework for a pan-Baltic covered bond. 

Supporting the development of local capital markets is one of the EBRD’s strategic priorities. 

As recently reported by LSM, this is not the only case of the Baltic states taking advantage of pooled resources to overcome their small scale. On September 18 the three Nasdaq central securities depositories in the Baltics announced their merger.

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