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Unified investment product would be bold move for EU

Entrance hall of the Europe Building in Brussels. Photo: European Council.

Imagine a groundbreaking European savings and investment product, open to all 450 million individuals across the European Union, supported by a harmonised tax incentive endorsed by every EU member state.

Wishful thinking? Probably so, but maybe not.

In the upcoming days, European finance ministers will delve into discussions about an innovative Belgian proposal for a fresh breed of "attractive" and standardised European savings products. The aim? To combat the prevailing hesitancy among European households to invest their savings in financial markets.

Such a groundbreaking product is envisioned to pair seamlessly with a "user-friendly investment environment." This entails providing citizens not only with superior tools and instruments for comparing investment opportunities but also improved access to accurate and comprehensible information.

Belgium's finance minister, Vincent Van Peteghem, unveiled this visionary concept on Tuesday at a Brussels financial literacy conference jointly hosted by the European Commission and financial supervisor FSMA. The timing couldn't be more perfect, just before a meeting of European finance ministers in Gent during Belgium's presidency of the European Council.

Task for next EU Commission

Van Peteghem asserted that the creation of such a pan-European savings product should ascend to the top of the financial agenda for the upcoming European Commission, slated to take charge post the June European elections. He even floated the idea of exploring potential tax incentives.

“We should incentivize citizens to maximise the opportunities offered by capital markets such as a diversified savings income and the potential for higher returns,” Van Peteghem said. 

“By offering attractive EU wide saving products for retail investors, we should encourage the European Commission to assess the potential of establishing a framework for unified market based savings products accessible to European citizens. Those products could potentially enjoy the consistent and harmonised tax treatment across Member States. 

The idea for a single, harmonised EU retail savings product is part of discussions on making the European economy more resilient and competitive, which includes a desire to diversify finance by better using the potential of capital markets. 

CMU has barely shifted the needle

Unlike their US counterparts, European businesses and households remain heavily dependent on bank-driven debt finance, as opposed to market-driven equity finance. An EU programme known as the Capital Markets Union (CMU) that was first introduced in 2014 has barely shifted the needle.

Belgium’s finance minister has already tasted success in using tax incentives to encourage households to invest instead of holding their savings in bank deposits with mediocre interest rates. Last year, Van Peteghem’s national debt agency raised 22.9 billion euros in government bonds, offering around 400,000 retail investors an interest rate of 2.81% for one year, well above the rates offered by Belgium’s commercial banks. The bond included a small tax incentive.

“All of a sudden, with the issuance of the state bonds, households started to discuss financial affairs at the kitchen table,” Van Peteghem told the conference. ”Households started to discuss possible alternatives to the ordinary savings accounts, alternatives at the banks that they do not trust.”

‘Robin Hood’ Van Peteghem fights commercial banks

In a subsequent bond sale of a similar nature later this month, the Belgian government opted not to replicate the tax incentive. Nevertheless, the sudden and unexpected popularity of the "staatsbons," as the bonds are referred to in Flemish, has earned Van Peteghem the nickname “Robin Hood of the small saver”.

“Households have started to realise that there is an alternative, that there are higher yielding instruments,” he said at the conference. “The extreme dependence of European citizens on bank deposits as their primary savings option, together with their risk averse mindset, is denying them the potential to capitalise on higher yielding investment opportunities.”

Like with any financial regulation in Europe, the ultimate adoption of Van Peteghem’s idea will likely draw resistance from banks and other financial institutions, and from national governments who want to retain their say over domestic taxation. The plan could twist the sector’s arms in terms of products and services that they offer. 

‘Opportunity to fashion change’

Still, Mairead McGuinness, the EU Commissioner for financial services, flagged on Tuesday that she is keen to support initiatives that boost financial literacy. For McGuinness, the EC-FSMA event on financial literacy was “one of the most important conferences that I will address as a commissioner,” she said, inviting delegates to “focus on concrete solutions”. “Your health is your wealth and your wealth is your health.”

“This is an opportunity to fashion change,” McGuinness said. “This is a real opportunity in an election year to get these topics higher on the agenda. I believe that this is a societal moment, where the financial system as the backbone of our economy and society can play an even greater part in achieving the objectives we set ourselves in Europe around equality, around the just transition, around the greening of our society and economy.”

A survey by Eurobarometer has found that financial knowledge among EU citizens is particularly low in southern and eastern member states, while it’s highest in Finland, Estonia and Denmark. Research by Brussels-based think tank Bruegel has demonstrated a clear correlation between financial knowledge, adequate savings and pension security.

Europe’s competitiveness in a changing world features on the top of the agenda for the Gent ‘Ecofin’ meeting of finance ministers. Former Italian prime minister and former European Central Bank president Mario Draghi on Saturday will update European finance ministers on his study of Europe’s competitiveness.

(This update corrects the 12th paragraph to reflect 21.9 billion euro as the correct amount Belgium raised with its bonds last September. An earlier version of this article incorrectly said teh amount was 12.5 billion.)

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