The European Union faces a critical challenge: despite holding one of the world’s largest pools of private savings, an estimated €300 billion flows out of Europe annually, primarily to the United States, due to the fragmentation and inefficiency of its capital markets.
This capital flight weakens Europe’s ability to finance innovation, scale up businesses, fund its security and compete globally. Within the broader Savings and Investments Union (SIU), this note outlines two priority areas for reform, each accompanied by concrete policy proposals which Member States should take under EU coordination:
- Providing effective incentives for European savings to fund European businesses. To channel both retail and institutional savings into productive European investments, the note puts forward the following proposals:
- An EU-wide Individual Investment Savings Plan, inspired by successful national schemes (e.g., Italy’s PIRs, France’s PEA, and the UK’s ISAs), to encourage retail investments in private and public markets through (national) tax incentives.
- An auto-enrolled EU Long-Term Savings Product, based on - but much improved - the existing Pan-European Personal Pension Product (PEPP), to pool long-term capital across Member States.
- Tax breaks for pension funds that allocate capital to the European real economy, particularly in strategic sectors including defence, green and digital.
- Paving the way for a more efficient and consolidated European asset management industry. Recognizing that Europe's asset management sector is fragmented and unable to compete with global players, the note proposes:
- Facilitating cross-border M&A to create globally competitive EU asset managers.
- Harmonizing regulatory frameworks, particularly in insolvency, taxation, and corporate governance, to reduce fragmentation and increase market integration.