The issue has once again taken center stage following the decision by Swedish fintech company Klarna to go public on the New York Stock Exchange, according to Euronews. For Europe, this was yet another warning sign: the most successful companies are increasingly choosing the U.S. market, where it is easier and faster to raise capital.
The paradox is that Europe has no shortage of money. European households’ savings are estimated at approximately 37 trillion euros. But this money rarely reaches European businesses: instead, companies continue to rely on bank loans or seek investors overseas.
Brussels believes that without a deep capital market, Europe risks losing the race for technology, artificial intelligence, and the defense industry to the U.S. and China.
That is precisely why European Commission President Ursula von der Leyen has made this reform one of the main economic projects of her second term. At her request, former European Central Bank President Mario Draghi prepared a report stating that the EU needs to invest an additional 750–800 billion euros annually to remain competitive.
“Either we do this, or we face a slow death,” Draghi warned.
Brussels’ plan consists of two parts. First, to encourage Europeans to invest their savings more actively in stocks, bonds, and investment funds. Second, to remove barriers between the financial markets of different EU countries so that capital can move more freely within the union.
However, this is precisely where the reform has stalled. EU countries cannot agree on who should oversee the single market and how much authority should be transferred to European regulators. Each country is in no hurry to relinquish control over its financial sector.
According to Verena Ross, head of the European Securities and Markets Authority (ESMA), without new sources of financing, European companies will continue to seek capital in the U.S.
While politicians argue, the U.S. market remains the main magnet for European businesses. And this best illustrates why creating a truly single capital market in Europe has proven more difficult than creating a single market for goods or services.
