'Only an integrated capital market will give the EU the means to achieve its ambitions' (2024)

Europeans keep complaining. The gap with the US economy is widening. No technology giants are emerging on the Old Continent. The acceleration of publicly subsidized industrial investment in China threatens to overwhelm the European environmental transition market. The need for rearmament is obvious, but the logistics cannot keep up, due to a lack of resources.

One of the keys to overcoming these challenges is well known: the integration of capital markets across the continent. Broader, stronger and more resilient sources of funding would enable European companies to finally compete with China and the US. The EU can no longer afford to neglect this lever, which would usefully take over from public subsidy policies that are running out of steam due to high debt levels.

The April 17 European summit, devoted to competitiveness, should enable us to move on from complaints to solutions. Former Italian Prime Minister Enrico Letta will contribute to the discussion with a report on the need to complete European integration, particularly in the financial sector. This will be followed in June by another report on competitiveness by former European Central Bank (ECB) President Mario Draghi.

Tapping into surplus savings

The idea of a capital markets union (CMU) dates back to 2014 when Europe was emerging from the financial crisis and the ensuing sovereign debt crisis. At the time, the focus was more on stabilizing financial markets than stimulating investment.

A decade and a Brexit later, the CMU has become a perennial issue: it is widely debated, but its implementation leaves much to be desired. The proportion of savings financed by financial markets is stagnating, and household savings are still not being adequately utilized for future projects. "The EU's relative size in global capital markets has shrunk – from 18% to 10% in 16 years – and the share of European companies in the market capitalization of the world's 100 largest companies has fallen from 11% to 5% in seven years," deplored Fabrice Demarigny, former head of the European Securities and Markets Authority, the sector's European regulatory body, in Le Grand Continent magazine.

And yet, the completion of the CMU is crucial to building the strategic autonomy to which Europe aspires, by giving itself the means to achieve its ambitions. By 2030, the environmental transition will require an annual investment of €620 billion, and the digital transition €125 billion, according to the European Commission. These amounts cannot be covered by public funding alone, hence the need to tap into Europe's surplus savings for long-term investments through the integration of capital markets. "The best European IRA [Inflation Reduction Act] we can have is the UMC," said Charles Michel, president of the European Council, to Les Echos, referring to the US subsidy plan to attract investment for the environmental transition.

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