Investments are stranded and European capital is looking elsewhere. This is the bitter observation made by many European leaders in light of the Old Continent’s economic and industrial losses compared to its American and Chinese competitors. To stem this decline, the countries of the EU would need massive investments in strategic sectors such as the energy transition, artificial intelligence and even the military industry. But where do you find this money? In a column published on the website of Financial Times, Emmanuel Macron and German Chancellor Olaf Scholz lament that “too many companies are turning to the other side of the Atlantic to finance their growth”. According to the leaders of the Franco-German married couple, European countries are currently less attractive than the United States for thriving companies that want to develop and find investors. Emmanuel Macron and Olaf Scholz therefore advocate the creation of a “European savings product”.
300 billion savings per year for the United States
The idea is simple: to encourage the citizens of the Union to invest their savings to finance the development of European companies and thus put an end to the flight of capital across the Atlantic. “Every year, our savings of around 300 billion euros a year will finance the Americans,” Emmanuel Macron lamented already on April 24 in his speech at the Sorbonne, “an aberration,” according to the French president. . An analysis that converges with a more recent one report by Senator LR Albéric de Montgolfier, pointing to “abundant European savings of more than €35,000 billion” which “are not being sufficiently mobilized for the benefit of businesses or long-term investment”. For Senator Jean-François Husson, chief rapporteur for the Finance Commission, “there is an important factor that plays a role in mobilizing individual savings: it is trust. But today it is not high enough.” The idea of a European savings product would therefore amount to encouraging – possibly via tax incentives – European individuals to place their savings in riskier European funds, thus allowing companies to raise more money.
“Imperative”
Such a tool would be part of a broader plan and an older project: a union of capital markets in Europe. Never implemented, this hypothetical union would amount to breaking down the financial borders between the various EU member states. Already in 2015, senators Jean-Paul Emorine and Richard Yung dedicated a proposal to solution by the question. “The loss of confidence after the financial crisis as well as of sovereign debt has caused a ‘Balkanization’ of the financial system, which has retreated behind national borders,” the senators lamented, indicating that “this financial fragmentation” made it “difficult for natural flows of savings from surplus states to other states And the two parliamentarians quote Benoit Coeuré, member of the board of the European Central Bank: “the internal capital market is not only desirable: it is a real imperative”.
France in the lead
Seven years later, the European institutions are no longer advanced. But Europe’s colossal need to reindustrialize while succeeding in its energy transition has brought this idea back to the fore. Emmanuel Macron and Olaf Scholz insist once again on the need to “seriously examine the question of a truly integrated European financial market, structured around a banking union and a capital market union”. The two leaders are not the only ones who advocate the establishment of such a system. The former Italian Prime Minister Enrico Letta presented a report in Brussels in the spring that called on the 27 member states of the EU to establish a capital market union. “It will be the European answer to the US Inflation Reduction Act,” argued the Italian in an interview with World, referring to the colossal investment plan that Joe Biden decided to revive the American economy. Bruno Le Maire, ardent defender of a UMC, asked Christian Noyer, former governor of the Bank of France, for a report on the subject. Delivered to Bercy in April, the text argues according to the echoes to develop a long-term European savings product, revitalize securitization and relax the regulatory and supervisory framework for banks and insurance companies.
Resistance from northern countries
But this French offensive for a UMC, with the support of Germany, which was previously rather reluctant, is encountering the hostility of a large number of countries in northern Europe. “It is understandable,” explains Senator Jean-François Husson, for whom these countries depend on “their good economic and budgetary conditions and a certain financial power” to refuse a new financing bar to more indebted countries, such as France and the Mediterranean countries. Beyond this apparent lack of solidarity is a major comparative advantage that countries such as Ireland, Estonia and Luxembourg consider threatened by the Capital Markets Union project: their attractive tax regime. Because further integration of the various European financial systems would inevitably involve some form of harmonization of the applicable rules in each individual state.
A pressure for companies
Harmonization from above for the most flexible countries and from below for the most regulated countries. A kind of compromise in order not to see the best European start-ups and companies leave the old continent to go public in the United States. Also a way for companies to pressure political leaders to achieve less regulation. On 26 April 2024, the CEO of Total, Patrick Pouyanné, confirmed that the group was considering moving its main listing from Paris to New York. “The European shareholder base in TotalEnergies is declining, especially the French base. We have lost 7% of French shareholders over the last four years, mainly due to regulations.”
