Former Italian prime minister Enrico Letta has drafted a road map for the next European Commission on the future of the Capital Market Union (CMU), hinting at the creation of a Savings and Investments Union to unlock €33trn of private savings to fund the bloc’s strategic goals.

Private savings amounting to €300bn end up every year in the US, and in the hands of US asset managers – a concerning trend driven by the fact that financial markets in continental Europe are not integrated enough – according to Letta’s report.

A reform of Public Private Partnerships (PPP), within the framework of the Savings and Investments Union, would encourage pension funds to channel savings to finance infrastructure, it added.

In the report, introduced today to the EU’s head of states, Letta also proposes “simplifying and upgrading” the Pan-European Personal Pension Product (PEPP), and to create a workplace savings product.

Those types of financial products could take the form of an auto-enrollment EU Long-Term Savings Product, overcoming the fragmentation of welfare systems and pension schemes in Europe, and conceived as a funding channel by institutional investors, according to the report.

The EU should also draft a set of rules to support EU Deep Tech Stock Exchange for pension funds investing in deep-tech startups, to compete with the US, strengthening the bloc’s strategic autonomy and economic security, it added.

The creation of a Savings and Investments Union goes hand in hand with a more integrated market for bonds issuances through “EU supranational bonds”, to fund public goods, energy or defence infrastructure and equipment, or the reconstruction of Ukraine, Letta wrote in the report.

Enrico Letta

Enrico Letta’s report recommends changes to unlock €33trn of private savings

“We need to run, in the next [EU] legislature we must close the gap, especially with the US,” Letta said.

EU leaders are meeting today to talk about a common strategic agenda for 2024-2029, with one of the main discussion points being concrete measures to strengthen the CMU.

The German fund industry association BVI has listed 44 measures to reform the CMU, as the European asset management industry operates in an extremely competitive environment, it said.

The fee cap of 1% on annual savings for PEPP makes it “economically unviable for potential providers”, a product that instead should foster the EU Single Market, BVI said.

The association also supports the further development of bonds issued by the EU as part of its regional policy to finance green and social EU projects.

The asset management industry stands ready to match investors’ money with relevant projects, BVI added.

EFAMA members are also supportive of Letta’s report.

Tanguy van de Werve, EFAMA director general, said: “While we will need some time to analyse Enrico Letta’s report, we welcome its high level of ambition and the determination to make a leap, cut red tape, strengthen the single market and allow EU companies to compete on a global level.”

He noted that more competitive European companies will naturally attract more capital and enjoy better financing conditions, thereby further reinforcing their competitiveness.

“Enrico Letta correctly identifies that when it comes to boosting EU capital markets, better connecting the real economy with European citizens’ savings will be a key driver of success. We now need bold actions from all stakeholders involved to turn that vision into reality,” van de Werve said.

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