Opinion Geert Gielens: Capital market elephants

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The European Union is a paper tiger where financial markets are concerned. In view of future funding needs, this is a serious cause for concern. It is thus in our interest to keep European money in the European market to fund European businesses and projects. But that is not happening today. Billions of euros flow out every year to be invested elsewhere.


A truly single European capital market is the dam that we need to build.

The current focus on the functioning of the capital market is good. And so is the will to grow this capital market in Europe. However, without a strong and stable European capital market, strategic autonomy is out of the question. Projects cannot be financed, or can only be financed with difficulty. But there are some elephants in this capital market room and if you only work on the structure of the capital market, you might be in for a rude awakening. 


After all, national rules and laws mean that the European market is completely fragmented. Matters of importance to investors, such as insolvency legislation, consumer protection, taxation or company structure types also vary between countries. What ordinary citizen can then make informed decisions to invest in the project of an SME from another European country? You have no idea what risks you are exposed to, and it takes a lot of effort to obtain and process the right information. Harmonising all these differences is therefore essential. And legislation at European level is crucial for this purpose.


If we want European investors to invest in Europe, then we need to have European businesses that are at least as attractive to investors as those in the US. Companies that operate in real growth markets with at least as much potential for share price gains as in the US. And we can only conclude that we have fewer of these companies in Europe. In fact, the whole IT revolution passed us by. So we need to give our companies more scope to innovate in Europe. We need policies that facilitate product and business development, with less regulation. Without businesses that investors believe in, money will always flow out, regardless of whether we have a hyper-efficient capital market.


Lastly, risk appetite also plays an influential role. If we want more businesses and projects to be funded through the capital markets, we also need investors who are willing to immerse themselves in the necessary information and assume the risk of their investment. Compared to US investors, Europeans are simply not very big risk takers. More financial education is clearly needed in Europe.


Put simply, making Europe’s capital markets work better is right and absolutely necessary. But this needs to be backed up by policies that not only make the whole supply side of the economy work better, but also promote financial literacy, helping investors to gain the knowledge they need to dare seize the opportunities offered by this single capital market and these innovative European companies.


Geert Gielens, Chief Economist Febelfin