Goodbye to banking barriers in Europe: the EU will unify markets to curb the flight of capital to the USA

The European Union is taking a giant step to prevent capital flight to the United States and to boost the continent's companies. The bloc's Economy and Finance ministers have agreed on a legislative package to unify and simplify financial rules across all EU countries with the goal of making it easier for the savings of EU citizens to be allocated to European companies and innovation projects.

Faced with an increasingly large-scale economy, European companies have been left behind in the global economy, partly due to a funding problem. Until now, financial markets have operated in a fragmented manner, with different rules and supervisory systems. And this has led to a problem recently pointed out by Ursula von der Leyen. "Every year, nearly 300 billion euros of European savings leave for abroad, mainly towards the United States," the President of the European Commission stated. The rest of the savings that remain on the continent, she argued, often remain "asleep" in low-yield bank accounts. For this reason, she urged for these funds to be put "at the service of the development of our own companies".

This is precisely the goal of the new legislative package announced this Friday, which represents the most profound regulatory reform of European capital markets in recent years. It modifies more than 18 key directives and regulations to unify rules and avoid state-level fragmentation of banking bodies, under the supervision of a single body. Thus, an executive council is created within the European Securities and Markets Authority (ESMA) that guarantees direct control at a European scale of the actors intervening in financial operations.

Less dependence on banks and more return on savings

One of the most innovative points is that it is equipped with new tools to channel private savings towards the productive economy. These tools have a dual objective that must benefit both companies and citizens. On one hand, it allows companies—especially SMEs and startups—to issue shares or debt in any EU country without obstacles. This will allow them to raise money from private investors across the continent and reduce dependence on traditional bank loans, which currently account for more than 70% of their financing.

On the other hand, it revalues family savings. As Von der Leyen herself stated, 10 trillion euros of European citizens' money is currently in bank deposits, practically without earning any returns. With inflation, this money loses value year after year instead of generating returns. The new proposal must translate into a broader and simpler offer of pan-European investment funds and long-term savings products from the financial institutions themselves.

"The long-term prosperity of the EU will depend on our ability to innovate, invest, and compete," assured the Minister of Finance of Ireland, who holds the rotating presidency of the EU. "In a world of global competition, Europe's strength lies in its scale." For this reason, he has argued that the agreement will allow European savings to remain on the continent to better finance innovation, businesses, and European jobs.