On Monday, the European Commission presented a strategy aimed at redirecting up to €10 trillion in bank deposits throughout the region towards crucial investment opportunities.
"Right now, an insufficient number of European citizens are achieving satisfactory returns on their diligently saved money, particularly through straightforward and affordable methods," stated EU Commissioner for Financial Services Maria Luis Albuquerque to journalists in Brussels. "This situation is unfortunate and constitutes a collective loss," she further noted.
The capital within the EU is substantial: European households save approximately €1.4 trillion yearly as opposed to $800 billion in the United States—however, about €300 billion of these savings from Europe are directed towards non-EU markets annually.
The suggested Savings and Investments Union (SIU) seeks to tackle these unutilized chances by enhancing the flow of savings towards fruitful investments, thereby realizing 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 obvious choice by establishing circumstances that provide appealing prospects, competitive returns, and minimal obstacles.
Mario Draghi’s landmark report on competitiveness cautioned last year that the EU will require at least €750-800 billion annually by 2030 to remain competitive against international rivals like the US and China.
“The moment has come when, unless we take action, we will be forced to choose between reducing our social benefits, harming our environment, or limiting our freedoms,” warned the ex-Italian Prime Minister last September, urging EU countries to act quickly to maintain their position globally.
However, public funding by itself is insufficient to meet the European Union’s aspirations; therefore, it is investigating methods to encourage additional private investment and simplify access to financing for businesses within the EU.
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 commissioner also mentioned that it would examine the European Union’s regulations concerning securitization, "with an emphasis on due diligence, transparency, and prudential standards for banking institutions and insurance firms. This initiative aims to liberate bank resources, thereby enabling more effective assistance to businesses," he explained.
The EU similarly relies on the European Investment Bank Group along with national promotional banks to draw in private investors for joint financing of initiatives that bolster the bloc’s economy and align with its political objectives.
Meanwhile, decreasing inefficiencies inside the single market and eliminating regulatory and supervisory obstacles for cross-border activities is intended to assist companies in expanding throughout the EU.
"European companies cannot benefit from the size and synergy of the single market. This is expensive and constitutes a competitive disadvantage for the EU," Albuquerque stated.
The European Union's banking industry continues to be divided and relatively smaller when measured against the market valuation of major U.S. banks. To illustrate, JPMorgan Chase has a greater market cap than all the top ten European banks put together, as reported by Factset.
The Commission intends to implement measures aimed at guaranteeing equal treatment for all entities involved in financial markets throughout the EU. This will involve enhancing the utilization of convergence instruments and redistributing oversight duties between national authorities and European bodies.
The message has caused conflicting reactions 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 forth for the Capital Markets Union.
"Private funds alone can't address Europe's significant investment requirements, especially concerning climate change initiatives. According to Philipponat, without reassessing public financing strategies, the Structural Investment Units (SIUs) won't be effective," he stated, emphasizing that the main issue lies in the insufficient political commitment from individual countries.
On the contrary, the European Banking Federation views the SIU as far more extensive than just a rebranding effort due to its scope exceeding that of the long-paused Capital Markets Union initiative.
The concept behind the SIU aims to motivate individuals to keep investing in financial markets for personal growth and diversification, with the likelihood of achieving superior returns over time for their retirement funds,” explained Sébastien de Brouwer, Deputy CEO at the European Banking Federation, during an interview with Euronews.
Regulation and oversight should also undergo examination and potentially be refined or made simpler as needed to guarantee that banks stay “competitive, profitable, and stable,” de Brouwer stated. This would also help enhance or fully unlock banks’ ability to lend more.
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