EU markets need to ‘activate long-term capital pools’

European capital markets are facing a decline in competitiveness, particularly when compared to the United States — and need to activate long-term capital pools across retail and institutional investors.

That’s according to a joint report released by the European Banking Federation (EBF), the European Fund and Asset Management Association (EFAMA) and the Federation of European Securities Exchanges (FESE).

The report, co-developed by the three European associations and authored by Oliver Wyman, sheds light on progress made towards the Capital Markets Union (CMU) and gathers insights from various capital markets leaders on how to succeed.

The report is the result of extensive research and interviews conducted with 37 senior industry stakeholders, synthesised into a “collective voice” of the European capital markets on the challenges and opportunities faced in order to strengthen Europe’s competitiveness.

The report says European capital markets are currently facing a decline in competitiveness, particularly when compared to the United States.

This poses a significant threat to Europe’s economic growth and its ability to finance innovation, support green and digital transformation, and address the needs of an aging population.

The report highlights the importance of leveraging Europe’s capital markets infrastructure to its full potential, increasing overall capital pools, and enhancing investor outcomes.

It emphasises the need to activate the demand side of capital markets by improving retail investors’ access to attractive products, enhancing financial literacy, incentivising retirement savings, and creating tax structures conducive to long-term investments. 

The report says deliberate demand-side and supply-side steps taken over the next five years can set the conditions that will build more momentum, attract more investors, and create more investment opportunities for the decades ahead.

Magnus Burkl, Head of Capital Markets Europe at Oliver Wyman, said: “Our research for this report reinforces our belief that European Capital Markets are well-functioning but performing below their full potential.

“To reach its full potential, Europe needs to activate long-term capital pools across retail and institutional investors, which can act as a flywheel for increasing the competitiveness of capital markets.

FESE Director General Rainer Riess said: “Europe needs deep and liquid capital markets to finance its companies and deliver attractive valuations. Cutting red tape and getting citizens to put their investments into capital markets are key to unlock the flywheel.

Tanguy van de Werve, Director General at EFAMA, said: “Increasing pension savings of European citizens is key to help fill the retirement gap and can boost Europe’s capital markets.

“Bold actions from policymakers are now required to defuse the pension time bomb and allow our companies to thrive.

Wim Mijs, European Banking Federation CEO, said: “’Developing vibrant and competitive European capital markets is crucial to harness the necessary financing power to usher in true economic transformation in the EU.

“This report marks a significant milestone in outlining the path towards game-changing reforms that can fulfill the full potential of European capital markets.

“With Brussels and EU member states attentively listening, the momentum for change is palpable.