Will citizens channel their savings to boost EU businesses?
By Isabel Marques da Silva. The European Commission's proposal for a Savings and Investment Union wants citizens to also help EU companies grow. This episode discusses what it would take to make investing savings in financial products a win-win situation for everyone involved.
The EU needs around €800 billion in additional investment each year to remain competitive in the global economy, according to the Mario Draghi Report. One new source could be Europeans' piggy banks, as households save €1.4 trillion annually.
It's estimated that around €10 trillion is sitting idle in low-yield bank deposits in the EU. The Savings and Investment Union (SIU) proposes to redirect part of it to invest in key sectors, such as transport infrastructure, energy or defence.
A big problem is that investing in markets can be a risky and complex process, and only one in three Europeans, on average, currently does so.
"I would be very conservative and investing in things that I know will last and have a clear future," said a Brussels passer-by interviewed by Euronews. A Hungarian resident in Budapest said: "I've had my private pension stolen, so I've got a basic distrust of these things".
To boost financial literacy seems to be a key step for success with the SIU plan, and the European Commission promises to detail a concrete strategy by the end of this year.
"If the process can be streamlined somewhat by having a smaller list of already available products that are generally suitable for general investors, that have a long-term investing horizon, that are diversified, that have low fees, that are appropriate for people saving for their pensions, then some of extra costs and compliance burdens can go away on both sides, for the people using the accounts and the people offering them," said Rebecca Christie, senior fellow at Bruegel think tank, in Brussels.
What about using the pension funds?
Another proposal in the SIU plan is to increase the supplementary workers' pension schemes that run in parallel to public pension funds. Besides revising the current framework, the European Commission will collect best practices and make them available to all 27 member states.
The Commission is trying to capture more private capital, but also prevent it from fleeing to other jurisdictions, notably the US. One way to do it is to have a credible strategy to convince professional investors and citizens to risk their assets on the future of European business.
