Whether the White House “won” its trade negotiations with the European Union is debatable: Americans will now pay more for French wine and German cars, while Europeans get a tax cut on US goods. Nonetheless, the talks clearly exposed Europe’s lack of leverage. To gain more, the bloc must rapidly improve its competitiveness, starting by mobilizing the trillions of euros in investment needed to fund innovation, strengthen its militaries and decarbonize.
Obscured in all the focus on tariffs has been the fact that the bloc finally has a plan worth pursuing. The European Commission’s Savings and Investment Union is its most coherent attempt yet to integrate fragmented capital markets. The goal is simple: to turn Europe’s €35 trillion ($41 trillion) in household savings — much of it trapped in bank deposits — into more productive investment.
The to-do list is long: harmonize insolvency codes, streamline withholding-tax refunds, modernize post-trade infrastructure. But the real obstacle isn’t technical; it’s political.
A timely reminder came recently from Norway’s $1.7 trillion sovereign-wealth fund. In a 14-page letter to the commission, the world’s largest single shareholder warned that Europe’s capital markets remain too fragmented, legal certainty too weak and regulatory enforcement too uneven to attract long-term investment at scale. The EU now accounts for just over 15% of the fund’s equity portfolio, down from 26% a decade ago.
In trying to reform this picture, the commission doesn’t have to start from scratch. One example to follow is Sweden, which built Europe’s most investor-friendly capital market. Reforms in the 1990s and 2000s enrolled workers by default into pension funds that channeled savings into markets. Financial education reinforced a culture of investing. Investment savings accounts added a transparent vehicle for retail savers; instead of taxing each capital gain, the system levies a flat annual charge (about 1%) on the portfolio’s value.
The results are hard to argue with: more liquidity, strong small-cap performance and a culture that treats capital markets as a normal route to prosperity. Although Sweden accounts for just 3% of the EU’s gross domestic product, it frequently outpaces its larger peers when it comes to initial public offerings.
The EU’s broader market, on the other hand, remains a frustrating patchwork. Flagship initiatives like the personal pension product have floundered, undermined by a lack of tax incentives and uneven implementation. Tax-reclaim delays still strand billions. Fragmented oversight and regulatory “gold-plating” of EU directives to protect national incumbents keep savers and funds boxed in.
The commission’s blueprint has some sensible proposals — including on auto-enrollment pensions, insolvency standards and tax simplification — but the EU will need to go further. A single capital-markets supervisor, although politically challenging, should be the long-term goal. Short of that, expanding the remit of the European Securities and Markets Authority in cross-border areas such as clearinghouses and systemic trading venues while pressing national regulators to align enforcement would help.
Likewise, a voluntary single rulebook for cross-border products — known as a 28th regime — could offer businesses and savers greater legal certainty and lower compliance costs. It would need simplified digital access, unified disclosure, consistent supervision and coordinated tax treatment to enable low-cost, EU-wide investment. Ultimately, national governments still shape savers’ behavior — through tax policy, retail investing rules and more. Without better alignment in such areas, no EU framework will succeed.
European leaders would be wise to remember the US could rip up even this one-sided trade deal at any time and seek further concessions. That makes internal reforms especially urgent. If the EU truly wants to boost growth, strengthen strategic autonomy and help its savers prosper, it can’t afford to miss this opportunity.
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