Europe's ambitious plan to reignite economic engines

As Europe endeavours to uphold its competitiveness amidst economic rivals, its politicians believe they hold a concealed asset: the savings of its citizens, which remain unused and dormant.

From Italy, which sells government bonds to private individuals, to France, which considers a pan-European savings instrument, and Britain, which provides tax exemptions for investments in British stocks, governments throughout the continent are exploring avenues to activate household wealth.

Europeans have traditionally possessed more savings than Americans, and this discrepancy has recently widened, possibly due to uncertainties such as the conflict in Ukraine.

Significant funds exist in Europe that could be redirected towards common objectives, such as the green transition or bolstering defence. Politicians hope that if private funds are invested in local stocks or government debt, they could bridge the gap in Europe's development and productivity compared to the US and China, which heavily subsidise their industries.

However, some argue that such programmes may disillusion individuals and fail to address the fundamental issues of the European economic model, which deter investments, according to Reuters.

"Dormant funds"

Europeans have traditionally possessed more savings than Americans, and this gap has recently widened, possibly due to uncertainties like the war in Ukraine.

Some officials, like French Finance Minister Bruno Le Maire, are targeting these savings, including €8.4 trillion in deposits in Eurozone banks. Le Maire, who has argued that the money "sleeps" in accounts instead of contributing to the country's economic prosperity, advocates for a pan-European savings instrument. Meanwhile, other French politicians propose channelling savings towards local defence companies through state-guaranteed deposits.

Similar efforts are underway elsewhere in Europe, but many economists outright reject the notion of idle money, noting that deposits are a vital source of funding for banks.

"The idea that money 'sleeps' because it sits in a bank account is, to be honest, somewhat absurd, as there is nothing preventing a bank from issuing a new loan when it has the opportunity," commented Benjamin Braun, a political scientist at the Max Planck Institute for the Study of Society, to Reuters.

Government bonds

Some governments directly borrow from their citizens, including Greece. Italian households were the largest buyers of the country's public debt last year, while Britain announced the issuance of a new "retail" bond, following the example of Belgium and Greece.

A key advantage of raising funds in this manner is that private investors are less volatile than professionals and are much more likely to retain bonds until maturity, as they are not concerned about their quarterly performance. "It's a great savings instrument that has worked quite well throughout history and allows the state to direct public funds into priority areas," Braun told Reuters.

However, by granting governments access to substantial amounts of long-term capital, these bonds may impede Europe's efforts to control public expenditure and high deficits.

According to Reuters, households may also regret concentrating a significant portion of their assets in their own country, where they may already have their primary income and home.

[With information sourced from Moneyreview.gr, Reuters]