Brussels wants to tap into the bulk of Europeans' 10 trillion euro savings, urging EU member states to provide tax incentives for investment accounts — part of an effort to deepen the bloc's shallow and fragmented capital markets, the Financial Times reports, writes UNN.
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Historically, Europeans have saved a larger portion of their income compared to Americans. But due to a combination of generous social security systems, low financial literacy, and fragmented incentives, about half of EU household assets are held in bank accounts, where they depreciate during periods of high inflation, the publication notes.
Only about a third of Europeans own stocks, compared to more than half of households in the US.
"We want to give our citizens incentives to really put their savings to work," EU Commissioner for Financial Services Mairead McGuinness told the Financial Times.
"By doing so, we will also be able to channel more funds into our capital markets, providing more opportunities for our companies to grow, innovate, and create better jobs," she added.
This is part of Brussels' efforts to create a "savings-investment union" – an attempt to pool national capital funds so that European companies can raise the necessary funds for growth without resorting to US assistance. Mobilizing retail investors is seen as an important part of this effort.
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The EU's actions echo those of other Western economies, such as the UK, aimed at channeling pension savings into productive assets, including infrastructure and private equity.
Brussels is asking governments of the bloc's countries to create investment accounts with tax benefits, using deductions, deferrals, or exemptions, and to ensure the most favorable tax regime for assets held in them, according to a recommendation adopted by the European Commission on Tuesday.
These accounts will provide retail investors with access to stocks, bonds, and investment funds without entry fees and without minimum investment requirements.
However, the European Commission can only make recommendations in this area, as it does not have powers over the tax policy of the bloc's member states.
Investment experts warn that with limited budgets, few countries are likely to increase existing benefits for fear of losing tax revenues.
"The tax regime is key. Most member states are burdened with debt and have very limited tax capacity," said Tanguy van de Werve, CEO of Efama, the EU asset management association. "If anything, they want to increase tax revenues."
But Brussels assures that expanding asset ownership will broaden the tax base.
The European Commission also urges member states to improve financial literacy. Studies show a strong correlation between low financial literacy and holding money in bank accounts.
"No one needs to be an expert, but if you don't know the basics, you can't invest," said Annamaria Lusardi, a senior fellow at the Stanford Institute for Economic Policy Research.
Some EU member states, such as Germany, are already considering measures to encourage citizens to overcome caution in investment matters, seeking to reduce the dependence of future generations on expensive state pension programs. The government of German Chancellor Friedrich Merz has promised parents to allocate 10 euros monthly for investing in savings funds on behalf of their children.
Attitudes towards investment can vary significantly across EU countries. Residents of Northern Europe are more likely to own shares than those in the South, who prefer to invest in real estate or government bonds, considering them safer assets.
"We don't need to reinvent the wheel," said Albuquerque. "But we need to facilitate this exchange so that you can learn from what really works."