As the EU seeks to reignite growth, its biggest test may lie in channelling dormant household savings towards deeper capital markets while promoting occupational and voluntary pension regimes.
Europe’s competitiveness challenge is structural. Slower productivity growth, fragmented capital markets and mounting regulatory complexity have collectively weighed on the bloc’s ability to compete globally.
Against this backdrop, the Commission published the Competitiveness Compass on 29 January 2025, translating, amongst others, the landmark Draghi report into a five-year strategic blueprint for restoring Europe’s economic vitality.
Within the Compass lies an instrument with the potential to bring boundless opportunities for European financial institutions.
Turning momentum into growth
Given the mid-to-long term nature of many of the Compass’s underlying measures, the reality for European businesses has not yet been changed significantly – but the momentum is clearly building. Recent omnibus packages, including those dealing with sustainability reporting, point to simplifications that will make doing business easier.
But the Savings and Investments Union (SIU) represents perhaps the biggest opportunity for the financial sector. In essence, it aims to channel household savings (around €10 trillion in bank deposits) and the insurance industry’s assets (around €9.5 trillion) – among others – into strategic growth sectors of the European economy.
For financial institutions, the SIU represents an opportunity of roughly €20 trillion to design investment products targeting retail and institutional investors aligned with these financing needs while simplifying client journeys. Moreover, to reinforce the competitiveness agenda, digital enablers such as the European Digital Identity Wallet could reduce onboarding and distribution frictions, reinforcing the shift towards scalable pan-European investment models.
Retail participation: The missing link
In 2021, only 17% of EU household assets were held in financial securities, with households finding it difficult to access financial products due to complex documentation and fragmented distribution, among others. The Retail Investment Strategy (RIS), which is part of the SIU, aims to change this.
By amending MiFID, Solvency II, UCITS, AIFMD and PRIIPs, the RIS seeks to empower retail investors by (i) increasing investor protection, (ii) enhancing transparency and disclosure, in particular with regards to costs, (iii) ensuring genuine value for money and (iv) regulating information provided by Finfluencers and generally increase the financial knowhow across the board.
The Solvency II reform, in particular, seeks to empower insurers to allocate more capital to financing the real economy by revising capital requirements for long-term equity investments.
Lastly, with the Commission encouraging the establishment of fiscally attractive Savings and Investments Accounts, and with the reform of the PEPP under the guise of encouraging investments in Pillar 3 pension plans, all signs are pointing to far greater capital flows from household savings towards capital markets.
A strategic and structural opportunity for European finance
The SIU represents a structural inflection point for the European financial sector. The €20 trillion might seem like a pipe dream at first given that the SIU might not be able to cure all of the fragmentations in European capital markets, particularly tax-related fissures. But even if only a fraction of this capital gets reinvested, the impact will be significant.
European financial institutions who position themselves as genuine partners in Europe’s strategic economic renewal will be key enablers. They will have to develop the capacity to channel retail and institutional savings into vehicles that are both accessible and aligned with Europe’s industrial priorities, while ensuring cost efficiency and theme relevance of investment funds.
Those that proactively embrace these regulatory and policy developments, shape product design accordingly and invest in the infrastructure required for deeper capital markets stand to define the next chapter of growth in the European economy.
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