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Brussels wants to put more of Europeans’ €10tn in savings to use by urging member states to offer tax incentives for investment accounts — part of a push to deepen the EU’s shallow and fragmented capital markets.
Historically, Europeans have saved a higher proportion of their income compared with Americans. But owing to a mix of generous welfare systems, low financial literacy and a patchwork of incentives, about half of EU household wealth is held in bank accounts — where, in times of high inflation, it loses value.
Only about a third of Europeans hold stocks compared with more than half of households in the US.
“We want to give our citizens the incentives to actually put their savings to work,” Maria Luís Albuquerque, EU commissioner for financial services, told the Financial Times in an interview.
“And by that, we would also be able to direct more funds into our capital markets, give more opportunities to our companies, which would be able to grow, innovate [and] create better jobs,” she added.
This is part of a push by Brussels for a “savings and investments union” — an attempt to tie up national capital pools to ensure that European businesses can raise the necessary funds to grow, without having to turn to the US. Mobilising retail investors is seen as an important part of that effort.
The EU’s move echoes pushes in other western economies, such as the UK, to channel retirement savings into productive assets, also including infrastructure and private equity.
Brussels is asking national governments to create tax-advantaged investment accounts using deductions, deferrals or exemptions, and to ensure the most favourable tax treatment for assets held within them, according to a recommendation adopted by the commission on Tuesday.
The accounts would offer retail investors access to shares, bonds and investment funds without entry costs or requiring minimum amounts.
However, the commission can only make recommendations in this area as it lacks power over national tax policy.
Investment experts warn that, given tight budgets, few countries are likely to increase existing incentives out of fear of forgoing tax revenue.
“The tax regime is key. Most member states are debt-ridden and have very limited fiscal capacity,” said Tanguy van de Werve, director-general of Efama, the EU asset management association. “If anything, they want to raise tax revenues.”
But Brussels argues that widening asset ownership would expand the tax base.
The commission also wants member states to improve financial education. Studies show a strong correlation between low financial literacy scores and keeping money in bank accounts.
“Nobody needs to be an expert but if you don’t know the basics, you’re not going to be able to invest,” said Annamaria Lusardi, senior fellow at the Stanford Institute for Economic Policy Research.
Some member states, such as Germany, are already looking at policies to encourage citizens to overcome their caution when it comes to investing as they try to reduce future generations’ reliance on costly public pension schemes. German Chancellor Friedrich Merz’s government has promised parents €10 a month to invest in share savings plans on behalf of their children.
Among EU countries, attitudes towards investment can vary widely. Northern Europeans are more likely to hold stocks than southerners, who prefer to invest in property or government bonds, which they consider as safer assets.
“We don’t have to reinvent the wheel,” Albuquerque said. “But we have to facilitate these exchanges so that you can learn from what actually worked.”
Data visualisation by Martin Stabe
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