A Clear Call for Action: Europe Needs a Capital Market Boost

Achieving this will require Europe to deepen its capital market, consolidate market liquidity, and enhance the innovation capabilities of its capital market ecosystem and infrastructure. Building on initiatives like the Savings and Investments Union, we now need to go far deeper. A small number of focused actions over the coming weeks can have major effects.

The overall depth of European capital markets depends on structural initiatives across all 27 member states to strengthen the usage of capital markets in their pension systems. Moving savings from bank accounts to productive and return-generating investments will be key.

Some, like Sweden and the Netherlands, have moved ahead and now have a solid foundation for a future-proof pension system. They have also gained the deep liquidity needed to fund IPOs and company transformation projects. These successes must be replicated on a European scale, country by country. We need a coalition of the ambitious and responsible for future generations, powered by a Franco-German engine.

Clear and focused European progress could create strong tailwinds for the deepening of markets, even in traditionally lagging countries. Besides political momentum driven by the urgency of pension funding gaps, there has also been a surge in retail investing. A new dynamic is emerging. Young people are taking their future into their own hands by investing in ETFs and funds. Continued international capital inflow is further strengthening domestic momentum as global investors rebalance their holdings to reduce their historic over-exposure to the US.

However, even though market liquidity slowly starts to deepen, Europe’s capital markets remain a patchwork quilt – hundreds of mostly non-transparent platforms, divided by national boundaries and regulatory fragmentation. This fragmentation is a strategic vulnerability. Global competitors, particularly those in the US, benefit from harmonized, highly liquid, and transparent markets, with infrastructure at scale. In contrast, Europe’s investors and issuers face higher costs and intransparency, leading to a sentiment of illiquidity.

The recent Franco-German FIVE report has highlighted the funding gap for growth and IPOs. European leaders must urgently reverse the long-term trend of liquidity getting trapped in non-transparent venues. They need to take effective steps to increase the share of volumes handled in transparent reference markets in Europe to over 50 percent – just as has been the case in the US all along.

The EU Commission's proposal does not address this topic adequately. What is needed is the genuine harmonization of capital market rules and equal treatment of trading platforms, to weave together Europe’s fragmented markets landscape into a single, resilient fabric.

It would be simplistic and misleading to assume that the consolidation and integration of European capital markets depend on the merger of public equity markets.

This is not the case: to increase liquidity, we must first address the regulations that cause fragmentation, particularly those related to dark pools. This may require adjustments to European competition law, enabling Europe to develop market infrastructures capable of providing the liquidity, scale, and innovation it needs.

Only then will market infrastructures be able to generate economies of scale to achieve global competitiveness. More efficient structures will benefit all of Europe.

But it is also necessary to vertically integrate the various components of financial infrastructure, as we have done within Deutsche Börse Group, to create a globally competitive ecosystem, covering multiple asset classes from equities to bonds and funds/ETF as well as derivatives, and covering the entire value chain: indices, trading, clearing, settlement, and data. With more than 10,000 #CapitalMarketsEngineers in Europe, including 6,000 outside Germany, we are a truly pan-European player.

To address Europe’s major challenges, we must reach a critical mass of capital ready to invest in the growth of European companies. We need a decisive acceleration driven by a strong coalition of Member States, with a European regulatory framework that channels liquidity and savings toward these innovative and productive investments.

We are ready to lead this transformation. Nevertheless, a collective effort is crucial. Europe must go beyond mere market-organizing measures and enable the deployment of the capital that our future demands.