The fragmentation of European markets continues to weigh on channel savings into essential investments which support the growth of the euro zone. In a turbulent scenario marked by growing geopolitical tensions, the dual challenge of the green and digital transition requires that Europe not fall behind in terms of innovation compared to the United States and China, and that it is able to take full advantage of the potential of its activity. engine. But without a massive investor base and proper channeling of savings, a deep capital market cannot emerge.
The need to make savings profitable requires the creation of “labelled national products” which encourage long-term investments within the euro zone itself. A strategy which, if widely deployed, would channel around 200 billion euros on European marketsaccording to a study prepared by the French Ministry of Economy focused on the development of the EU Capital Markets Union (CMU).
The European Union has one of the highest savings rates in the world13.3%, surpassing the United States by more than five points, according to data collected by the Banque de France at the end of 2022. Concretely, the financial savings of EU households amounted to 35.533 million euros in 2022, almost double the region’s GDP. . Two thirds of this amount was concentrated in five Member States: Germany, France, Italy, the Netherlands and Spain.
However, savings are poorly distributed. Around 20% of euro zone residents’ monetary reserves are invested in debt securities issued elsewhere in the world, the analysis shows. “There is a lack of investment opportunities in Europe, which is why we look for them outside. European investments are no longer as competitive as in the United States or Japan,” said Massimo Cermelli , professor at the Deusto Business School, who also highlighted the need to simplify regulations as in the United States, where investments are “juicier”.
Overregulation
Just think that Europe has 28 central securities depositories, these organizations which hold financial securities to facilitate real estate exchanges. In contrast, the United States only has one. A fragmentation which “directly affects the transaction costs borne by European investors”, warns the study commissioned by the former French Minister of the Economy, Bruno Le Maire. “The United States has always attracted investment and savings. lack of competitiveness and excess regulation They constitute an obstacle for the CMU,” added Cermelli. The challenge is clear: avoid a drain on the public and private sectors.
Added to the low attractiveness of investments within the euro zone is the low risk predisposition. Bank deposits, savings accounts and guaranteed or liquid life insurance funds account for almost half of the financial assets of European households, eliminating the importance of investments in riskier but more profitable long-term assets.
Now, certain countries offer long-term savings products such as the PER and the PEA in France, which allow you to invest in French or international companies; the company supplementary pension plan Ticket rental from Germany; or the long-term individual savings plan (PIR) in Italy. And after the failure of the pan-European individual pension product (PEPP), the committee of technicians convened by Le Maire recommends opting for a decentralized approach “based on a label” which involves a attractive tax regime legitimized by a predominant allocation to European assets (for example, 80% or more).
A more varied menu. This would be key to making the European market more accessible and competitive, said Francisco Uria, global head of banking at KPMG. “We must increase the diversification of products offered to investors so that savings can become an investment contributing to the financing of the European economy,” he added.
Putting an end to the fragmentation of capital seems to be a priority of the European Commission and the ECB. The President of the Community Executive, Ursula von der Leyen, highlighted this among her most ambitious objectives of her second term. And Christine Lagarde, President of the ECB, has put the question back on the table several times. “Capital markets are the missing link that allows Europeans to convert their large savings into more wealth,” he said last week, recalling that this will allow them to spend more and strengthen domestic demand. He of course recognized that this was an unresolved issue, regretting that “this growing urgency has not been accompanied by tangible progress towards the UMC”.
Closing the gap with the United States
Europe can no longer postpone the design of the integration of its capital markets in the face of its enormous financing needs. By 2030, it will be necessary to invest approximately one billion additional euros each year to meet the challenges of the ecological and digital transition, in addition to strengthening its defense industry. These injections of money become even more necessary for the Old Continent to emerge from its lethargy and try to close the growing economic gap with the United States.
The Letta report is clear: US GDP per capita increased by 60% between 1993 and 2022; that of the EU, less than 30%. And the outlook for this year is not encouraging. The International Monetary Fund estimates growth of 2.8% for the United States, while expansion in the Eurozone would remain at 0.8%.
The Capital Markets Union, announced in 2015, aims to remove bureaucratic obstacles between different EU states to give businesses more opportunities to raise funds. The economists at Capital Economics highlight three major advantages of CMU. “First, a larger equity market would make it easier for companies to achieve economies of scale. Furthermore, it could increase the sources of financing available to SMEs. Finally, the creation of a large and liquid bond market in the EU can promote the development of the corporate bond market, which would also facilitate access to financing”, they indicate.
Institutional agendas highlight the urgency of integrating capital markets in the EU, as demonstrated by the Draghi report. However, progress remains slow. Capital Economics warns that it is impossible to quantify the CMU’s potential benefits to gross domestic product and is skeptical that deeper capital markets in Europe will be enough to persuade households to invest the same proportion of their wealth in risky assets than in the United States. . “Even if the CMU can facilitate investments in Europe, it would take a long time to have a significant macroeconomic impactgiven that US markets are much larger and more liquid,” they say.
