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Francesco Canepa
FRANKFURT (Reuters) – As Europe seeks to maintain an edge over its economic rivals, politicians think they have a secret weapon. It is the untapped savings of the people.
European governments are exploring ways to mobilize household wealth, with Italy selling bonds to households, France talking about pan-European savings products and the UK proposing tax breaks for investments in British shares. are doing.
All of these plans share an underlying idea. The idea is that Europe has plenty of money to spend on goals ranging from a green transition to strengthening its military.
Politicians hope that private money invested in local stocks and government debt will help close the growth and productivity gap with the United States and China, which heavily subsidize their industries. ing.
But critics say such schemes risk disappointing savers while failing to address deep flaws in Europe’s economic model, which they see as discouraging investment.
“This is a way of inventing simple solutions to very complex problems,” says Daniela Gabor, a professor at the University of the West of England.
Wasted money?
Europeans have long saved more than Americans, but the gap has widened recently, perhaps due to uncertainties such as the Ukraine war.
Politicians like France’s Finance Minister Bruno Le Maire are now eyeing this nest egg, which includes 8.4 trillion euros in bank deposits in the euro zone.
Le Maire wants a pan-European savings product, saying money is “sleeping” in accounts rather than contributing to prosperity. Meanwhile, French lawmakers have suggested that savings could be channeled to domestic defense companies through state-guaranteed deposits.
Outside the European Union, the British government has proposed a new type of account that would allow Britons to invest up to 5,000 pounds ($6,301.50) tax-free in domestic companies.
Such plans have a checkered past.
Over the past five years, Italians who invested in government-backed funds that invest in local small and medium-sized businesses have underperformed global stocks by about 35 percentage points on average, according to data from consultancy Analysis.
Many economists point out that deposits are an important source of funds for banks and reject the idea of dormant funds.
Benjamin Brown, the paper’s political economist, said: “The concept of money sitting in bank accounts ‘sleeping’ is frankly absurd, because banks will make new loans when the opportunity arises. There’s nothing to prevent that from happening.” Max Planck Institute for Social Research.
In fact, data from the European Commission and the ECB shows that European companies have consistently had financing as a minimal problem for almost a decade, generating enough revenue to cover all their investments.
Rather, Brown and others argue that the lack of investment in Europe reflects poorer growth prospects compared to the United States. Multinationals investing abroad means the eurozone is even exporting capital, they say.
“They’re looking for a solution to a problem,” said Dirk Schumacher, head of European macro research at Natixis.
“I don’t think corporate investment spending is being held back by tight financing conditions, but I think it’s being held back by a lack of demand and a lot of structural changes.”
He cited competition from China, high energy prices and a lack of skilled labor, among other things.
Mario Draghi, the former head of the European Central Bank, is due to brief EU leaders this summer on the issues that are holding Europe back.
public debt
Some governments borrow directly from their citizens themselves.
Italian households were the biggest buyers of the country’s public debt last year, with recent bonds touted as a shortcut to cruise vacations. The UK joins Belgium and Greece in announcing new savings bonds.
The main advantage of leveraging retail investors is that they are less fickle than professionals, don’t have to worry about quarterly performance, and are more likely to hold a bond to maturity.
“There is a great savings product that has worked very well throughout history that allows countries to direct public funds to priority areas, and that is sovereign debt,” Brown said.
He and other economists said part of the solution to Europe’s long-term challenges, such as building a greener economy, requires more investment by countries that don’t need immediate financial returns.
But these retail bonds risk undermining efforts to rein in public spending by giving governments, most of which have run large deficits since the coronavirus outbreak, access to a pool of patient capital. There is.
Households may also regret concentrating too many assets in their home country, where they are likely to already have their main income and residence.
“This is a double sin: it abandons diversification and gives the government the wrong incentives,” said Massimo Famularo, a Milan-based investment consultant.
($1 = 0.7935 pounds)
(Reporting by Francesco Canepa; Editing by Mark John and Katherine Evans)
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