Aiming at €33 trillion in household savings! The EU plans to break down national barriers in financial services and promote the creation of a truly unified capital market.

The European Commission is advancing a comprehensive plan aimed at breaking down national barriers in the financial services sector, with the intention of creating a truly unified capital market capable of competing with the United States and injecting new vitality into the struggling EU economy.

On Thursday, the EU’s executive body—the European Commission—announced a package of measures seeking to eliminate obstacles in cross-border transactions and asset management. These proposals are a core part of the EU’s “Savings and Investment Union” initiative, designed to more efficiently finance innovative enterprises and thus spur economic growth.

EU Financial Services Commissioner Maria Luis Albuquerque pointed out that the current EU capital markets are too small and lack competitiveness, and the status quo “does not work.” This move is seen as a response to stagnation in Europe’s growth model and lagging competitiveness compared to the US. The plan aims to more effectively channel the EU’s vast household savings into investments in the real economy, to prevent a continued outflow of innovative companies and capital overseas.

However, these reforms still require approval from EU member governments and the European Parliament and are expected to encounter resistance from some member states. Nevertheless, EU officials emphasize that as Europe gradually “loses ground” geopolitically and economically, advancing the single market is now urgent.

Regulatory integration as the core, strengthening ESMA’s powers

To achieve a truly unified capital market, the plan proposes a series of specific technical measures, with the most crucial being the promotion of regulatory integration and the enhancement of the European Securities and Markets Authority (ESMA)’s powers.

The proposal suggests streamlining cross-border business by strengthening the “passport” system for regulated markets and central securities depositories. At the same time, pan-European trading venues are allowed to consolidate their corporate structures and licenses into a single entity, while restrictions on distributed ledger technology (DLT) are relaxed. More importantly, the plan would transfer the supervisory authority for key market infrastructures—such as trading venues, central counterparties, and central securities depositories—to ESMA.

According to The Wall Street Journal, the EU currently has 14 central counterparties and 32 central securities depositories, while the much larger US financial market has only 8 central counterparties and 2 central securities depositories. Piebe Teeboom, Secretary General of Europe’s leading dealer association, commented:

“Policymakers should take a deep breath to ensure that turf battles between institutions and jurisdictions do not get in the way of achieving the ultimate goal.”

According to Reuters, this proposed centralization of authority has stirred controversy among member states. France, home to ESMA’s headquarters, has long advocated for expanding its powers, and financial regulators in France, Italy, and Austria have all called for ESMA to take over regulation of major cryptocurrency companies. However, the move also faces opposition from some member states—Malta’s financial regulator, for example, has voiced its objection to giving ESMA more regulatory authority over cryptocurrencies.

Mobilizing private savings, unblocking the “investment lifeline”

A core goal of the plan is to unlock and reallocate the EU’s massive domestic private savings. Although European households have a higher savings rate than Americans, their investment behavior remains extremely cautious.

Data shows that one-third of European household assets are held in cash and deposits, while the figure in the US is only 10%. According to Reuters, a report written by former Italian Prime Minister Enrico Letta noted that the EU has as much as 33 trillion euros in private savings, but around 300 billion euros of household savings flow abroad each year, mainly to the US.

Policymakers believe that the fragmentation of Europe’s financial markets is a key reason for investors’ cautious mindset, and innovative companies are turning to the US for funding and expansion due to lack of channels for venture capital—direct consequences of this disconnected landscape. The new plan aims to guide these savings out of inefficient checking accounts and into areas that better support the development of the real economy.

Market fragmentation hinders growth, EU seeks solution

The EU’s single market has long worked well for goods circulation but struggled in financial services, with fragmentation becoming a chief factor dragging down competitiveness.

According to European Commission data, in 2024 the total market capitalization of EU stock exchanges was only equivalent to 73% of its annual economic output, while the figure in the US is as high as 270%. In his 2024 report on enhancing European competitiveness, former ECB President Mario Draghi’s key recommendations included creating a larger common savings pool and investing more effectively to boost productivity and growth. ECB President Christine Lagarde also stated last month that Europe must break down internal barriers and shake off its outdated export-driven growth model.

Albuquerque warned that Europe is “losing ground both geopolitically and economically,” and must advance the single market to halt its decline. She stated:

“This is a path that Europe cannot afford.”

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