Europe does not lack ideas, innovators or money savings, said the President of the European Central Bank (ECB), Kristine Lagarda. Europeans save more of their income than Americans, and Europeans’ share of global patent applications is similar to that of the US. But in Europe, it is often difficult to translate ideas into new technologies that can drive growth. One of the reasons is that the European Union (EU) is not as capable as the US of channeling its considerable savings into innovation. In response, the EU has spent several years trying to create a “capital markets union”.
Since 2015, there have been more than 55 proposals and 50 initiatives. But much progress has not followed. As the first reason, K. Lagarda cites the fact that the savings of Europeans do not reach the capital markets in a sufficient amount. Europeans hold one-third of their financial assets in cash and deposits, compared to one-tenth in the US. In that case, EU households could channel their savings of up to eight trillion euros into market-based long-term investments. However, the obstacle is the private investment environment in Europe.
There are several reasons why individuals in Europe tend to keep their assets in cash and deposits. “As highlighted in the recent Eurobarometer in the survey, which found that only 18% of EU citizens claim a high level of financial literacy, the main factor is financial literacy. This suggests that many people may not be fully aware of the range of investment options available outside of traditional cash deposits, or may be hesitant to pursue alternative investment options that they do not fully understand,” says Mintos manager Mārtiņš Šulte.
Obstacles of fear
High commissions and limited access to suitable investment opportunities also play a role. Many EU households have few suitable investment options and high commissions. To invest in European funds, private investors have to pay almost 60% more in commissions than in the US.
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