An estimated €37 trillion is sitting largely idle across the European Union, prompting questions about why Europeans are not investing more and what can be done to unlock this capital. Verena Ross, Chair of the European Securities and Markets Authority (ESMA), discussed these issues in an interview, highlighting market fragmentation and lower financial literacy as significant barriers.
Ross explained that Europe still operates more like 27 distinct national markets rather than a truly unified European capital market. The initiative to deepen these markets, recently rebranded as the Savings and Investments Union (SIU), aims to reduce companies' reliance on bank lending and provide investors with genuine cross-border opportunities. She emphasized that capital should flow as freely within the EU as people do.
Comparisons with the United States reveal that American markets are deeper, more liquid, and benefit from a stronger culture of investing. Ross suggested that Europeans are less engaged partly due to lower financial literacy, which she attributes not to a lack of intelligence but to the presence of state-guaranteed pay-as-you-go pension schemes in Europe. In contrast, Americans are more directly engaged in investing for retirement due to the absence of such guarantees.
To foster greater investment, Ross argued for improved access to clearer, more accessible information and better tools for comparing investment options. This would help individuals understand the risks, costs, and opportunities involved. The current reliance on bank credit for business financing in Europe makes companies more vulnerable when lending conditions tighten, while a significant portion of household savings remains in bank deposits rather than being channeled into capital markets.
Ross hopes the SIU will broaden financing options for businesses, create a more integrated market, and enhance Europe's attractiveness to international investors. She also cautioned about the risks associated with AI-generated financial information, noting that these tools can have biases and provide inaccurate data, urging investors not to trust them blindly.
Looking ahead, Ross expressed a hope that within 10 to 15 years, Europe will have a deep and liquid capital market that supports European companies and strengthens the continent's global competitiveness. The realization of this vision hinges on overcoming the persistent barriers to a truly integrated European capital market.
