ECB, Lagarde: 'Europe loses ground, capital markets union urgent'

Capital markets in Europe remain fragmented, hampering the channelling of savings into essential investments. With Europe's position in innovation declining and geopolitical tensions rising, it is more urgent than ever to move towards a Capital Markets Union. This was said by ECB President Christine Lagarde in her speech at the 34th European Banking Congress in Frankfurt. Referring back to her speech last year, Lagarde pointed out that in the meantime the decline of Europe's position in innovation has become more evident.

"The technology gap between the US and Europe is now undeniable. The geopolitical environment has also become less favourable, with increasing threats to free trade from all over the world. As the most open of the major economies, the EU is more exposed to these trends than others. The Union of Capital Markets is at the centre of all these challenges' and is crucial to promote a dynamic and technologically advanced economy and to turn high levels of savings into wealth by stimulating domestic demand.

However,' Lagarde emphasised, 'the project is not progressing because it is not sufficiently well defined and follows a fragmented legislative approach, with more than 55 regulatory proposals and 50 non-legislative initiatives since 2015. Established interests oppose or weaken each measure, ultimately causing it to fail.

The underlying problem,' Lagarde added, 'is that European savings are not flowing to the capital markets in sufficient volumes because they are concentrated in low-yielding deposits. In 2023, Europeans saved about 13% of their income, compared to 8% in the US. However, about EUR 11.5 trillion, or about one third of total household financial assets, are held in cash and deposits. One of the main reasons is that retail investments in Europe are fragmented, opaque and expensive. A European Savings Standard could solve this problem by offering accessible, transparent and affordable investment products, ideally complemented by harmonised tax incentives across countries.

Bundesbank President Joachim Nagel also spoke at the 34th European Banking Congress in Frankfurt. "A new trade war triggered by the imposition of punitive tariffs as threatened in the election campaign by Donald Trump would have the effect of damaging the economy and boosting inflation in both Europe and the US," he said. "The implementation of such duties would reignite international trade conflicts and further undermine our multilateral order," Nagel concluded