Europe is on a mission to bolster its competitiveness in a turbulent world, and its ability to mobilise internal resources is key. From fostering cutting-edge technologies to reducing strategic dependencies, the European Union’s economic sovereignty rests on a critical yet underdeveloped foundation: its capital markets.
The need to complete the Capital Markets Union (CMU) has never been greater. The EU is underperforming both economically and in terms of productivity, and its citizens are investing only a small share of their savings. The existing financial architecture is no longer fit for purpose.
At the heart of the problem is the inefficient use of Europe's vast pool of savings. More than €10 trillion is currently held in low-yielding bank deposits, earning little interest — capital that could be channelled into productive investment.
Reshaping European consumers' savings
Compared to the United States, EU households are less active in capital markets. The European Central Bank estimates that aligning EU deposit-to-financial asset ratios with that of the US could redirect up to €350 billion annually into market-based investments.
To fully unlock Europe's investment potential, the European Commission has presented its Savings and Investments Union strategy. Building on the CMU action plans of 2015 and 2020, it calls for structural reform across four pillars: citizens and savings, investments and financing, integration and scale, and efficient supervision.
This article is part of The Parliament's latest policy report, "Building a competitive Europe."
Retail investor participation is central. EU citizens must be encouraged to move beyond traditional savings and embrace investment. The Commission plans to introduce a European blueprint for savings and investment accounts incentivised by tax benefits and designed to offer easy digital access, low costs and alignment with strategic priorities such as the green transition, defence and innovation.
Boosting financial literacy is also important. Citizens must be empowered to invest effectively. Only 18% of EU citizens possess high financial literacy; a forthcoming financial literacy strategy should strengthen financial education and offer transparent, value-for-money investment products. By doing this, the EU can cultivate an investment culture that supports personal financial security and economic growth.
Reforming the EU's capital markets
Equity financing is a cornerstone of a dynamic, innovation-driven economy, but Europe’s capital markets remain fragmented and shallow. A review of the European venture capital funds (EuVECA) regulation, along with stronger alignment of public funding tools – such as InvestEU and the European Investment Bank (EIB) – with private venture capital, will help capital flow more easily.
Institutional investors such as pension funds and insurers are also underutilised in these markets. They need to be encouraged to invest in equity, not just debt.
The EU’s capital markets are still heavily shaped by national silos. The Commission intends to remove barriers to cross-border finance through simplified fund distribution rules and unified trading and post-trading infrastructures.
The establishment of a single rulebook and centralisation of supervisory powers to EU-level bodies would help to ensure consistent oversight, reduce costs and increase investor confidence.
The European Parliament stands ready to act as a priority on measures around a Savings and Investment Union. We expect ambitious proposals from the Commission and need the European Council to show the willingness to commit and take concrete steps to make the CMU a reality.
Commission President Ursula von der Leyen was right when she said that completing the CMU is no longer a “nice-to-have.” In today’s world, it is a matter of economic survival and geopolitical strength. For a Europe that wants to lead, from tech to trade, the time to act is now.
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