On Monday, the European Commission presented a strategy aimed at redirecting up to €10 trillion in bank deposits throughout the EU towards crucial strategic investments.
“At present, an inadequate number of European citizens achieve a satisfactory yield from their diligently saved funds, particularly through straightforward and economical means,” stated EU Commissioner for Financial Services Maria Luis Albuquerque to journalists in Brussels. “This situation is unfortunate and amounts to a collective loss,” she further noted.
The capital within the EU is substantial: European households save around €1.4 trillion yearly as opposed to approximately €800 billion in the United States — however, about €300 billion worth of these European savings end up in non-EU markets annually.
The suggested Savings and Investments Union (SIU) intends to tackle these lost chances by enhancing the flow of savings towards fruitful investments, thereby unleashing the complete potential of the union’s capital markets for businesses as well as individuals.
Albuquerque contended that our objective should be to make investing in Europe an evident decision by establishing circumstances that facilitate providing appealing prospects, competitive yields, and minimal obstacles.
Mario Draghi’s landmark
report on competitiveness
cautioned earlier that the EU would require at least €750-800 billion annually by 2030 to maintain competitiveness against international rivals like the US and China.
“The moment has come when, unless we act, we will be forced to sacrifice our well-being, our ecosystem, or our liberty,” the ex-Italian Prime Minister stated last September, urging member nations to take prompt actions to prevent falling behind internationally.
However, public funding by itself is insufficient to meet the aspirations of the group; thus, the EU is investigating methods to encourage more private investment and ease financial access for businesses within the union.
Within the framework of the Savings and Investments Union, the Commission aims to tackle obstacles hindering insurers, banks, and pension funds from investing in stocks.
The Commission will examine the European Union’s regulations concerning securitization, “with an emphasis on due diligence, transparency, and prudential standards for financial institutions such as banks and insurance firms,” stated the Commissioner. This initiative aims to liberate more capital within banking entities so they can offer improved assistance to businesses.
The EU is relying heavily on the European Investment Bank Group along with national promotional banks to draw in private investors for joint financing of initiatives that bolster the union’s economic landscape and political objectives.
Simultaneously, decreasing inefficiencies within the single market and eliminating regulatory and supervisory obstacles for cross-border activities will be geared towards assisting enterprises in expanding throughout the EU.
“European firms are unable to enjoy the scale and synergies of the single market. This is costly and represents a competitive disadvantage for the EU,” Albuquerque said.
The European Union’s banking industry continues to be more segmented and smaller when measured against the market valuation of major U.S. financial institutions. To illustrate, JPMorgan Chase has a greater market cap than all the top ten banks in Europe combined, as stated by Factset data.
The commission intends to implement strategies that guarantee uniform treatment for every participant in the financial markets throughout the EU. This includes enhancing the application of harmonization instruments and redistributing oversight duties among national and European authorities.
The communication has sent out conflicting messages among those involved.
According to Thierry Philipponnat, who serves as the chief economist at Finance Watch, the SIU represents a “reshaping” of the 2020 goals set for the Capital Markets Union.
Philipponat stated that private funds alone can’t fulfill Europe’s significant investment requirements, especially concerning climate action. He emphasized that without reassessing public financing, the Structural Impacts Unit (SIU) won’t succeed, attributing this mainly to the absence of political commitment from EU countries.
On the contrary, the European Banking Federation thinks that the SIU goes beyond just being a rebranding effort as it encompasses a scope wider than the long-pending Capital Markets Union project.
“The concept behind the SIU is primarily aimed at motivating individuals to keep investing in financial markets for personal prosperity and diversification purposes, with the added benefit of potentially achieving higher returns over time for their retirement funds,” explained Sébastien de Brouwer, deputy CEO of the European Banking Federation, during an interview with GenZ Space.
De Brouwer mentioned that both regulations and oversight should also undergo review and potentially be consolidated and made simpler wherever needed. This would help maintain banks as “competitive, profitable, and stable” entities while enhancing their ability to lend more or operate with greater ease.