EU bank-saving raid can boost tired capital market

Even Wells Fargo CEO and President Charles W. Scharf.

BRUSSELS, - European Union leaders could pull trillions from the bloc’s collective couch cushions by offering savers an easier way to invest in stocks, according to the former Italian prime minister tasked with injecting new life into the single market.

In a report prepared for a summit starting Wednesday, Enrico Letta bemoaned Europeans’ habit of keeping money in bank accounts or life insurance products. For savers to have more trust in EU equity markets, Brussels should give them something better to buy.

Letta’s 147-page report, seen by Breakingviews, was commissioned by the 27 heads of government to gin up some ideas about boosting growth through deeper cross-border ties. One of the most novel initiatives is his call to create a new long-term retail investment product by 2025. It’s a key part of Letta’s ambition to rebrand the long-stalled “capital markets union” as a “savings and investment union”, aimed at unleashing some of the bloc’s 33 trillion euros in private savings to boost equity markets and fund green and digital investments.

Past efforts to draw retail investors into capital markets have been too small, too expensive or both. Products with acronyms like “PEPP”, “UCITS” or “ELTIF” are heavily regulated to protect retail investors and have failed to keep up with easy-to-access U.S. capital markets. In 2023, European UCITS saw a $38 billion outflow, on top of a $58 billion exodus in 2022, according to research provider Kepler Absolute Hedge. Industry data, opens new tab suggests the average UCITS is about one-seventh the size of a typical U.S. mutual fund.

EU savers seeking a garden-variety mutual fund face big differences in tax rules and licensing requirements across the different countries. Some states cracked down on cross-border investment to curb tax-dodging schemes that ran through Cyprus, Ireland or Malta, while others have daunting licensing, opens new tab or local-language requirements.

Meanwhile, investors who do invest in stocks abroad face tax withholding requirements from the likes of Spain or Italy, which can take years to resolve. The effect is that many retail savers either dodge equities altogether or only invest in their home markets.brussels could flesh out Letta’s broad recommendations by insisting on Eu-wide access for funds with low fees, diversified holdings, and sufficient liquidity. Asset managers such as Amundi (AMUN.PA), opens new tab or DWS (DWSG.DE), opens new tab could offer these kinds of products and centrally manage the tax withholding paperwork.

There are some obvious pitfalls beyond general risk aversion among the bloc’s savers. The plan requires getting national financial authorities on board and making sure lawmakers don’t add too many obstacles, like requirements on the amount of local-market stocks that the new funds would hold. One inauspicious precedent is the fact that member states have been reluctant to cede control of asset managers to a central EU supervisor.

But the bloc is desperate to boost its equity markets to keep more startups at home and fund clean energy and other expensive projects. Letta reckons EU citizens send about 300 billion euros of their savings abroad each year, mostly to the United States. Simply creating a new retail-focused fund alone might not reverse the flow, though it’s a good place to start.

Former Italian Prime Minister Enrico Letta on April 17 presented European Union leaders with a 147-page report on reviving the bloc’s single market. It calls for measures such as creating new investment products for retail investors, integrating electricity markets, and rethinking the balance between national and EU- Eu-levlevel state aid.

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J t designing and implementing a “simple and effective” cross-border savings product for retail investors, in order to develop pensions and long-term savings, according to draft conclusions prepared for the

April 17-18 summit in Brussels.

European households held 33 trillion euros of financial assets in 2022, largely held in bank accounts and guaranteed products like life-insurance contracts, according to Letta’s report.

Stock investment.

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