EU’s markets Big Bang depends on local fireworks

LONDON, Feb 27 (Reuters Breakingviews) - The European Union’s decade-long mission to beef up its financial markets has spawned multiple acronyms. What started out as the Capital Markets Union (CMU) has morphed into the Savings and Investment Union (SIU). A more appropriate moniker for reviving European savings and markets might be S&M, as it has involved more pain than pleasure. Even now, any meaningful progress will depend on what happens at a national level.

The campaign to kick-start European markets was born of multiple crises. The initial drive to make trading and capital raising more efficient received an impetus after the 2008 financial crisis and subsequent euro zone sovereign debt meltdown exposed the bloc’s reliance on shaky banks. Brexit removed the City of London from the EU’s single market. More recently, former European Central Bank boss Mario Draghi’s report on competitiveness identified a 750-billion-euro investment gap for financing renewable energy, and other critical needs.

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Now the EU faces even more urgent pressure to reform. U.S. President Donald Trump’s at-times hostile stance has exposed the bloc’s dependence on U.S. technology titans and historic lack of investment in defence. European leaders this month agreed unanimously, opens new tab to accelerate the SIU.

Reforming capital markets in a bloc of 27 countries with a combined economic output of around $20 trillion is a daunting task. The EU’s relative weakness when it comes to using equity and fixed income securities as a source of financing owes much to culture and history. The bloc has a long-standing dependence on banks, different legal frameworks, and language barriers which discourage cross-border investment.

However, a fragmented capital market with multiple local regulators and differing rules and infrastructures also points to tantalising potential efficiencies. Despite ten years of work these benefits remain out of reach. Initial public offerings in the EU raised just $17.7 billion last year, less than half the equivalent U.S. sum, as per LSEG data. Annual equity trading volumes relative to stock market capitalisation – a measure of liquidity and hence market depth – are roughly a third of the U.S. level, according to a 2025 report by the Association for Financial Markets in Europe.

Scratch beneath the surface, though, and change is happening. A package of reforms to make stock market listings easier is slowly being implemented, as are moves to boost securitisation. Perhaps the most significant reforms were those proposed by the European Commission in December, opens new tab. These aim to break down barriers for cross-border capital flows by streamlining regulation and tackling a fragmented market in equities. Myriad national players are involved in the business of trading and settling securities, and the preponderance of domestic regulators and rules pushes up costs. The United States has the Securities and Exchange Commission and the Depository Trust and Clearing Corporation, which dominates the clearing and settlement of securities. By contrast, Europe has more than 30 securities depositaries charging fees nearly two-thirds higher than their counterparts stateside. This imposes a 1 billion euro, opens new tab per year cost on the continent’s traders and investors, AFME reckons.

In an ideal world, all local obstacles could be removed by meshing together different players to create a single exchange on which all EU citizens can trade, connecting a capital-hungry German tech group with a Spanish saver. To some degree, that’s happening. Large players like Euronext (ENX.PA), opens new tab and Nasdaq (NDAQ.O), opens new tab have snapped up smaller regional bourses, centralising technology and infrastructure. Euronext bought the Athens stock exchange last year. Yet big countries like Germany and France have limited appetite for creating continent-wide operators if it means losing control of a national champion.

Brussels can still help by making regulation more efficient and removing barriers to competition. The Commission’s latest proposals include steps to make trade settlement more competitive while transferring more regulatory powers to the European Securities and Markets Authority. It is even encouraging disruption with a plan to foster blockchain-based technology that could simplify the trading and settling of shares or bonds.

These reforms move in the right direction, but will take time and may not work as intended. The drive to streamline regulation may end up increasing bureaucracy if the powers of a single supervisor overlap with local watchdogs. Countries that already benefit from vibrant markets, such as Ireland or Luxembourg, may see few benefits.

Besides, more efficient markets can only achieve so much. The United Kingdom has one of the most liquid bourses in Europe yet is struggling to attract new listings. And European stock exchanges may not be as sleepy as they first appear. Strip away the so-called Magnificent 7 tech stocks and the U.S. market is only 1.5 times more liquid than Europe’s, as measured by stock turnover relative to market capitalisation, think tank New Financial notes.

Other reforms are therefore necessary, which explains why lawmakers and market participants now talk more about the SIU than the CMU. When it comes to boosting savings and investment, governments can make big changes without pan-European coordination. Take Sweden. Draghi’s report, opens new tab notes that the Scandinavian country has attracted more IPOs over the last 10 years than Germany, France, the Netherlands and Spain combined. Last year it notched up two of the top, opens new tabfive offerings in Europe, Middle East and Africa, including the $3.7 billion raised by security group Verisure.

Sweden’s success is down to smart incentives and a multi-decade process of reforms, which include stripping back taxes and incentivising individuals to save and invest in their pensions. Some 36% of Swedish household assets are held in stocks, outstripping Germany, France and even the UK.

Many European countries are trying to copy Stockholm’s success. Both France and Germany have started to encourage more personal pension savings. Yet they have a lot of catching up to. Europe’s long history of government-run pay-as-you-go retirement schemes means pension assets are just, opens new tab 32% of GDP, versus 142% in the U.S. in 2022.

Reforms are getting harder. Europe’s ageing population has less incentive to save and governments have more debt. Past efforts have also proved misguided. The UK subsidised individual investment accounts to the tune of 8 billion pounds in 2024, yet many customers park their tax-free savings in bank deposits, doing little for growth.

This means there’s plenty of upside. New Financial estimates that, in a plausible scenario where each member state improved its performance to match the average of better-performing countries, Europe’s pool of long-term capital could grow by more than half to $44 trillion. Rather than dreaming up new pan-European acronyms, bureaucrats would be better off concentrating on local improvements.

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Editing by Peter Thal Larsen; Production by Pranav Kiran

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Neil Unmack

Thomson Reuters

Neil Unmack is a Reuters Breakingviews Associate Editor based in London. He covers credit markets, hedge funds, and Italy. Previously he was a corporate finance reporter at Bloomberg News in London. He started his career as a financial journalist in 2001 at Euromoney Institutional Investor, where he covered structured finance for EuroWeek magazine. He was educated at Eton College and Oxford University, graduating with a first class degree in modern languages.

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