At the risk of oversimplifying, we may say that the latter addresses the sovereign-bank negative feedback loop that epitomized the euro area crisis while the CMU contributes to tackling another potential circle that can be at least equally vicious: the firm- bank loop, whereby the funding difficulties of banks – or, even worse, pressures to deleverage – translate into more costly or less financing for creditworthy firms; in the reverse situation, when firms face problems in servicing bank credit, non-performing loans increase, weakening banks’ balance sheets and impairing their lending capacity.
At a micro level, the CMU can complement the banking sector in fostering innovation while also strengthening firms’ financial structures. Research has long documented the fact that, among external sources, equity financing is best suited to foster innovative activities, for a number of familiar reasons.