Invest in Europe First! How to Stop Capital Flight and Fund European Business with European Savings

The European Union faces a critical challenge: despite having substantial private savings, a significant portion of this capital leaves Europe instead of being invested in its own economy. Structural inefficiencies, fragmentation in financial markets, and regulatory barriers prevent the EU from fully leveraging its financial resources to drive innovation, industrial competitiveness, and strategic autonomy. This capital flight weakens Europe’s ability to finance its green and digital transitions, support high-growth companies, and develop strategic industries such as defense, artificial intelligence, and semiconductors.

This report examines the underlying causes of Europe’s investment gap, including the absence of a fully integrated Capital Markets Union, disparities in financial regulations, and the limited capacity of European firms to scale globally. It highlights how these weaknesses put the EU at a disadvantage compared to other major economies, particularly the United States, which benefits from deeper capital markets and a more unified investment environment.

Unlocking Europe's Investment Potential

To address these challenges, the report outlines two priority areas for reform. First, the EU should create effective incentives to direct European savings into European businesses through an EU-wide Individual Investment Savings Plan, tax advantages for long-term savings, and support for pension funds investing in strategic industries. Second, the EU must consolidate and strengthen its asset management sector by facilitating cross-border mergers, harmonizing financial regulations, and reducing market fragmentation. These measures would not only curb capital flight but also boost investment in Europe’s industrial base, fostering a more competitive and resilient economy.