Capital markets alone won’t cut it: Time for a bold public investment strategy

Tomorrow, 24 June, the European Parliament Committee on Economic and Monetary Affairs (ECON) is voting on a key report on financing investments and creating a Capital Markets Union (CMU). This report comes at a time of revamped debate on the kind of role that capital markets should play in boosting EU competitiveness. As we explained in the first part of this blog series, the Commission has recently launched the Savings and Investment Union (SIU), with the objective of turning capital markets into a source of strategic investments.  

The ECON report is, therefore, set to play an important role in setting the tone for the Parliament’s stance on upcoming legislative proposals under the SIU umbrella. This is particularly relevant because the SIU, in its current form, is deeply flawed, both in its general narrative and specific details.  

The SIU communication is the stark evidence that the EU is searching for a solution to its investment gaps in the wrong place. By doing so, the risk isn’t only inaction, but a drift towards increasing privatisation and financialisation of our economic system. At the same time, the SIU falls short on those measures that could finally complete the CMU and turn it into a tool of competitiveness. 

Productive investments vs unproductive investments

As we explained in our first blog, capital markets play an important role in our economic system. They connect private savings with long-term needs, from business expansion to infrastructure development. However, relying on them is not the solution when it comes to unlocking much needed investments for the digital and green transition. 

The Commission’s narrative suggests that getting people to move their savings from bank accounts into capital markets will somehow generate real economic investment. But that’s a flawed assumption. Most equity trading today happens in secondary markets, where investors simply trade existing shares. These transactions don’t provide new capital to companies, meaning they are not productive. In other words, they don’t fund the projects we need – like digital innovation, affordable housing, energy security, or green transport infrastructure. 

While venture capital and Initial Public Offerings traded in primary markets can support innovation and startups, they represent only a small portion of total market activity. This is why the Draghi and Letta reports recommended measures to facilitate the trading in the capital of young companies’ shares. The SIU communication, however, does not announce any new policies in this area, nor does it provide clear guidelines on how private capital will actually go into productive investments. Without a clear plan to finance strategic, green sectors, the SIU risks becoming just another financial rebranding exercise.

Private capital alone won’t solve the investment crisis

Even in the best-case scenario – where the CMU operates smoothly and the sustainable finance framework is fully in place – private capital will still fall far short of what's required to address the EU’s investment needs, especially in the area of the green transition.

Fighting climate change and dealing with its impacts isn’t optional –  it’s urgent, and it’s going to require a huge amount of upfront investment. The European Central Bank (ECB) has made it clear: speeding up the green transition is essential not just for the planet, but also for keeping our economy stable. 

But here’s the catch: the private sector alone isn’t going to get us there. As non-profit association Finance Watch pointed out in this report, the structure and nature of capital markets themselves makes it unlikely that equity and debt financing will cover more than a third of the investment required for the green transition. Investors are focused on short-term profits and often ignore the longer-term risks of climate breakdown. In addition, many crucial projects, like climate adaptation, simply aren’t profitable enough to attract private money. 

To top it off, the Commission’s proposed Omnibus package is threatening to dilute key sustainability reporting obligations for companies, making it harder for those investors, who actually want to invest in sustainable businesses, to do so. Overall, if we're serious about the green transition (and we should be), the EU needs to stop hoping that markets will save the day and start stepping up with bold public investment.

The issue(s) with shifting savings into capital markets

The Commission seems convinced that too much of Europeans’ money is “sleeping” in bank accounts –  around €10 trillion, to be exact –  and that this money should be put to work in the capital markets.

To do so, the Commission is promoting simple, low-cost financial products. But this approach risks concentrating even more power in the hands of a few financial giants. These products often funnel people’s savings into funds managed by US-based asset managers like BlackRock and Vanguard, firms that hold massive stakes across nearly every sector. Their influence allows them to shape corporate decisions and market dynamics, often prioritizing shareholder returns through dividends and buybacks. The downside? Less investment in wages, innovation, and sustainability. Despite their growing importance, these firms remain loosely regulated and highly influential in policymaking. In its current form, therefore, the SIU risks serving the finance industry more than the public interest.

Another key strategy the Commission is pursuing to boost investment is the expansion of the supplementary pension sector – privately managed, voluntary schemes designed to top up public pensions. But this approach comes with serious risks. Shifting the responsibility for retirement onto financial markets transfers responsibility from the state to individuals, making pension systems more fragmented, more exposed to market volatility, and ultimately less reliable, especially for low-income and precarious workers. Over time, this could turn into a Trojan horse for pension privatisation across the EU, eroding the principles of solidarity and security that should underpin any fair retirement system.

What’s actually needed: strategic public investment for a green transition

If we’re serious about closing Europe’s investment gap and funding the transitions that really matter, we need to start by using the tools we already have. Institutions like the ECB, the European Investment Bank (EIB), and national promotional banks should be mobilised to directly support strategic investments that benefit people and businesses across the EU. For instance, the ECB could have a more purposeful role in driving the transition by greening its monetary policy – for instance, by introducing strong climate criteria to its refinancing operations to banks, and to its collateral framework. Take a look at our Manifesto “Stability Through Sustainability” for more details on this.

To make this work, we also need a broader rethink of the EU’s macroeconomic policy mix. Right now, the balance is tilted too far towards restrictive fiscal rules and fragmented national approaches. Instead, we need stronger fiscal coordination, more ambitious public spending, and regulation that actually supports Europe’s industrial, social and climate goals.

One way forward? Create a permanent EU-level investment instrument – like a Climate and Energy Fund – financed through common European borrowing. This wouldn’t just fill funding gaps; it would show that the EU can act strategically, collectively, and in the public interest. 

We also recognise that capital markets can help fund part of the EU’s investment needs –  but only if we’re realistic about their limits and ensure strong regulation. A real CMU requires more than boosting trading; it needs structural reforms. Stronger joint supervision under the European Securities and Markets Authority, repatriation of clearing activities, and unified rules on insolvency and corporate taxation are basic conditions for a truly integrated capital market. Without a clear roadmap, the CMU risks remaining a political buzzword. 

The Commission’s current approach, centred on deepening capital markets and mobilising private savings, simply doesn’t match the scale or urgency of the challenges we face. Capital markets can support part of the solution, but they’re no silver bullet. Without stronger public investment, better regulation, and coordinated fiscal policy, the EU risks doubling down on a flawed model that prioritises financial markets over real-world outcomes. 

With tomorrow’s ECON committee vote on the Capital Markets Union report, which will be followed by a Plenary vote in September, the European Parliament has a real opportunity to shift the conversation and the direction of EU investment policy towards a bold, public-led strategy that uses the EU’s full toolbox to invest in the future that Europeans both want and deserve. 

Stay informed on the vote result through our social media accounts!