Savings may not be Europe’s super weapon in economic war
As Europe seeks to hold its ground against economic rivals, politicians think they have a secret weapon: the untapped savings of its citizens.
From Italy selling government bonds to households, to French talk of a panEuropean savings product or Britain offering tax breaks for investment in U.K. shares, governments across Europe are seeking ways to mobilise household wealth.
All these plans share an underlying thinking: Europe is sitting on plenty of cash that could be channelled towards its goals, from the green transition to beefing up militaries.
Politicians hope private money, invested in local stocks or government debt, can help close a growth and productivity gap with the U.S. and China, which have been doling out massive subsidies to industries. But critics say such schemes risk disappointing savers while failing to address deeprooted shortcomings in the European economic model that they see as dissuading investment.
“It’s a way of inventing an easy solution to problems that are very complicated,” said Daniela Gabor, a professor at the University of the West of England.
Europeans have long saved more than their U.S. counterparts and the gap has widened recently, possibly due to uncertainties such as the war in Ukraine.
Politicians like French Finance Minister Bruno Le Maire are now eyeing this nest egg, which includes €8.4 trillion of euro zone bank deposits.
Mr. Le Maire, who has spoken of money “sleeping” in accounts instead of contributing to prosperity, wants a panEuropean savings product. French lawmakers have meanwhile suggested savings could be channelled towards domestic defence companies via stateguaranteed deposits. Outside the European Union, the U.K. government has proposed a new type of account that would allow Britons to invest up to £5,000 ($6,301.50) in domestic firms taxfree. Such schemes have a chequered past.
Italians who bought into governmentsponsored funds investing in local smalltomedium sized enterprises would have underperformed global stocks by around 35 percentage points in the past five years on an average, according to data from consultancy firm Analysis.
Many economists dismiss the very idea of dormant money, noting that deposits are a vital source of funding for banks.
“The notion of money that is ‘sleeping’ because it is in a bank account is honestly quite ludicrous, because there’s nothing that prevents a bank from making a new loan when it has an opportunity,” said Benjamin Braun, a political economist at the Max Planck Institute for the Study of Society.
Least of problems
Indeed, European companies have consistently put funding as the least of their problems for nearly a decade and generate enough revenues to finance all their investments, data from the European Commission and the ECB show.
Instead, Mr. Braun and others argue that low investment in Europe reflects meagre growth prospects compared to the U.S. Multinational corporations investing abroad mean the euro zone is even exporting capital, they say.
“They have a solution looking for a problem,” Dirk Schumacher, head of European macro research at Natixis, said.
“I don’t think corporate investment spending is held back by tight funding conditions, but by a lack of demand and lots of structural changes.”
He mentioned competition from China, high energy prices and a lack of skilled labour, among other factors.
Former European Central Bank chief Mario Draghi is due to report to EU leaders this summer on the issues that are holding Europe back.