The European Commission has launched a three-month public consultation on the long-term financing of the European economy.

One of the important questions that the consultation will cover is whether Europe's dependence on banks to finance long-term investment should give way to a more diversified system and a greater involvement of institutional investors, such as pension funds, or other alternatives.

The European Commission said that responses to the consultation will help it to determine what can be done to overcome the barriers to long-term financing.

Michel Barnier, internal market and services commissioner, said: "Europe's economy is facing massive challenges, including large scale long-term investment needs. These are essential as a basis for innovation and competitiveness, supporting a return to sustainable growth and jobs in Europe.

"These needs require long-term financing. Ensuring our economy and our financial sector – including banks and institutional investors such as insurers and pension funds – are capable of funding long-term investments is an important but complex task. We need to identify what barriers exist to long-term financing and what more can be done to overcome them."

Joanne Segars, the National Association of Pension Funds chief executive, said: "This is an important paper which recognises the major role that pension funds can play as long-term investors."

She added: "The Commission is starting to see that some of its other legislative proposals risk undermining saving and investment. We are particularly encouraged by the explicit recognition that the new EU Pensions Directive should not discourage sustainable long-term financing. This gives us hope that Solvency-II type rules for pensions will not be part of the Commission's plans."

Matthew Fell, CBI director for competitive markets, said: "The shift in the Commission's emphasis to how policy can help drive long-term growth is encouraging and must underpin all EU policy-making.

"Ensuring a stronger flow of finance to growing businesses and infrastructure projects is a vital shared challenge across the EU, so the Commission is right to tackle obstacles to long-term investment by insurers and pension funds. Promoting effective and efficient markets which can channel these and other non-bank forms of finance is particularly important, given that bank lending is constrained."

First published 26.03.2013

monique_simpson@wilmington.co.uk