Capital market integration is a top priority for the EU leadership. However, member states are still reluctant to deepen this process further. A fully-fledged European capital markets union comparable to the US remains elusive, although it is seen as necessary to compete in strategic sectors such as artificial intelligence and defence.
When Klarna chose New York over Europe for its stock exchange listing, it highlighted a challenge that Brussels has been trying to solve for years: Europe’s fastest-growing companies often look across the Atlantic for deeper capital reserves, Euronews writes in an analytical article.
As the EU seeks to build its own champions in artificial intelligence, strengthen its defence industry and support more fast-growing companies raising money at home, one question remains: why would a bloc with €37 trillion. EUR of household savings still struggling to finance their own fastest-growing businesses?
The European Union has recently stepped up efforts to reform its capital markets, aiming to make capital movements freer across the bloc.
Politicians are pushing for gradual reforms, including greater supervisory coordination, but a fully unified capital market is likely to take many years as member states struggle to agree on key technical details, slowing down the process.
The competitiveness challenge
The current pace of negotiations does not reflect the urgency expressed by the EU’s political leadership: Europe needs more integrated capital markets to compete globally with major powers like the US and China.
To achieve this, billions need to be invested in strategic sectors such as artificial intelligence and defense, amid intense geopolitical uncertainty, including wars and trade tensions.
The lack of strategic industrial and technological leadership means sacrificing geopolitical power and economic resilience, especially in a global landscape where dominance or even survival depends on control over resources and expertise.
This narrative is supported by leading EU politicians, including European Commission President Ursula von der Leyen, whose goal of making Europe more competitive on the world stage has become the North Star of her political mandate.
For this reason, von der Leyen commissioned former European Central Bank President and Italian Prime Minister Mario Draghi to prepare a report on EU competitiveness, which identifies capital markets reform as one of its central recommendations.
Presented in the fall of 2024, the report states that Europe needs EUR 750-800 billion in investment each year, equivalent to of up to 5% of GDP to achieve its competitiveness goals and remain globally competitive.
“It is “Do it or it is slow agony“, Draghi warned in one of his most famous speeches. Draghi describes this “agony“ as the continuous and cumulative erosion of Europe's economic position, driven by structural weaknesses such as high energy prices and a fragmented single market, which together make the continent less conducive to investment and innovation.
The EU is focusing on two priorities to unlock the potential of its capital markets
The first is convincing households to invest, mobilising a small percentage of the estimated €37 trillion in savings. The second is the integration of national financial markets across the EU to reduce barriers within the single market, making it easier for businesses to raise finance and for investors to put their money to work.
For this to happen, households need better access to capital markets, as well as a better understanding of how to invest and what the potential benefits are. For example, greater participation in financial markets can help people build up retirement savings.
At the same time, Brussels needs to improve the legislative framework, known as the Savings and Investment Union (SIU), to enable these reforms to take place.
Why is it easier for businesses to seek finance in the US?
Capital markets are markets where individuals, institutions and governments buy and sell long-term financial instruments, such as shares or debt.
They offer businesses a way to raise funds and support their growth. However, expanding across Europe remains a challenge. Cross-border operations can be expensive, time-consuming and involve significant administrative burdens. This is because rules differ between member states and, even when they are the same, their implementation can differ.
These are among the reasons why companies in Europe obtain most of their financing through bank credit.
“What we need to develop is a more diversified source of financing“, said the head of the European Securities and Markets Authority (ESMA) Verena Ross in an exclusive interview with Euronews Business editor Angela Barnes.
The big question: What is stopping Europeans from getting the most out of their money?
Without sufficient diversification, businesses are looking to other markets where financing is more easily available, such as the US.
“The US capital market benefits from a more consolidated supervisory approach. There are fewer layers of bureaucracy and red tape because the US uses a single currency,” said Rebecca Christie, a senior fellow.
The capital markets union legislation is part of the Savings and Investment Union (SIU), a package of legislative proposals currently under negotiation.
One of the key pieces of legislation aimed at harmonizing capital markets is the Markets Integration and Supervision Package, known as MISP.
Despite the intensification of talks on MISP in recent months, member states have yet to reach a common position, particularly on how to harmonize capital markets supervision.
Related
EU's six largest economies push for a capital markets union
Last spring, the six largest European economies—Germany, France, Spain, Italy, Poland and the Netherlands have made a proposal setting out how to centralise supervisory powers.
In particular, they propose transferring some supervisory powers to ESMA, but there is no consensus on whether to proceed, an EU diplomat told Euronews, speaking on condition of anonymity. Even among those who agree, there are differences of opinion on how and when this should be implemented.
“The problem with capital markets integration is not even political; "It's more of a national issue," said Avror Laluc, chair of the European Parliament's Economic and Monetary Affairs Committee, which played a key role in the legislation.
“I think there will be progress on supervision, but there are many details that will be difficult to agree on because of very different perspectives,“ Laluc added, referring to the fact that member states have very different capital markets cultures.
Klarna's decision to look across the Atlantic for deeper capital markets illustrates the challenge Europe faces. While there is broad agreement that the bloc needs to mobilise more private investment, national interests continue to slow progress towards a truly single capital market.