A coalition of banking and financial sector firms has called on the next European Commission and Parliament legislators to take action to increase the supply and demand for market assets in order to boost the competitiveness of the EU economy in comparison to the US.
In a joint report published by the European Banking Federation (EBF), the European Fund and Asset Management Association (EFAMA), and the Federation of European Securities Exchanges (FESE), the groups emphasized the importance of deepening the bloc’s single market for capital to unlock private investments worth trillions of euros and enhance the bloc’s competitiveness.
The report highlighted the declining competitiveness of European capital markets compared to the United States, pointing out that the size of Europe’s equity markets as a percentage of GDP was significantly lower than that of the US. The report also noted that liquidity levels in European capital markets were decreasing, while they remained high in the US.
Furthermore, the report raised concerns about the availability of assets for investment in major European economies, which lagged behind the US. It emphasized the need for capital markets to support innovation, fund green and digital transformations, and generate returns to support an aging population.
The report outlined recommendations to strengthen the demand side of capital markets, such as improving retail investors’ access to markets, enhancing financial literacy, reducing barriers to investments across EU countries, and providing tax and regulatory incentives to encourage pension funds to invest in the EU’s real economy. On the supply side, policymakers were urged to lower requirements for the securitization market, promote convergence of financial supervision, and harmonize insolvency laws across member states.
These proposals align with recent policy initiatives by EU institutions to revitalize the European economy through the Capital Markets Union (CMU). The report also coincides with an upcoming report on the bloc’s competitiveness by Mario Draghi, which is expected to emphasize the role of the CMU in mobilizing private capital to meet the EU’s energy and digital transition costs.
However, some of the report’s recommendations may face resistance from member states, particularly regarding insolvency laws restructuring and EU-level financial market supervision. Despite this, the report underscores the urgent need for EU policymakers to take decisive action to strengthen the Capital Markets Union and enhance the competitiveness of European capital markets.