r/europe • u/paneuropeanism_ Europe • 13h ago

News Von der Leyen: €300 billion in European savings flown overseas every year, primarily to the US, will be invested in Europe from now on. All 27 EU states agreed to establish the S&I Union, a step toward the full Capital Market Union

https://streamable.com/4h43qk
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u/Moriartijs 13h ago

Europeans have huge savings, but a lot of that vmoney ends up in US capital markets because they are deeper, more liquid.
Then a promising European company needs serious growth capital. Europe cannot provide (all of its money is in USA capital market) so the company either moves to the US, lists there, or gets bought by an American company. If we think USA and EU as rivals its super absurd. Europeans send their savings to America, America turns those savings into investment capital, and then uses that capital to buy successful European companies. And every time this happens, European capital markets become a little weaker and US markets a little stronger. It is a self-reinforcing loop, and structural problem of the European economy

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u/Harbinger2001 8h ago

Try being Canada. Successful Canadian companies inevitably become American ones.

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u/holdmyspot123 4h ago

Apparently Canada has declared economic war on the US though and treated them unfairly, and we must remember to be thankful to the USA for "existing".

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u/Harbinger2001 2h ago

You left out the /s.

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u/aleph_iskar 11h ago

this is circular reasoning. The money is in the USA, because companies cannot raise in Europe, because the money is in the USA. Calling bullshit.

Startups cannot raise meaningful amounts in Europe, because there is no meaningful VC capital. There is no VC capital, because there are no strong exits (yeah yeah Spotify and Klarna, whatever). There are very few strong exits, because companies are strangled by a thousand regulations, and because the market is significantly smaller and significantly more fractured than the US market.

The market is small because economic growth is poor. Economic growth is poor because of many economic decisions entirely within European control. Enough excuses with Americans. Americans, by now, don't really care about Europe. They don't need to acquire European companies, because there is no meaningful cutting edge innovation happening. Where are the humanoid robots? Where are the LLM companies? A single, lonely Mistral that is far behind 3 different South Korean companies.

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u/Moriartijs 11h ago

Where is the circular reasoning part? Its just self-perpetuating cycle of all kinds of capital being drained from EU. Im glad something is being done about it. It has nothing to do with Americans caring or not. EU stock-market capitalization at about 73% of GDP, versus roughly 270% in the US.

Also fact that companies can do whatever they want, suck everyone dry for benefits of few is no the brag that european mind can comprehend.

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u/Wanderer-91 7h ago

Make no mistake. They don’t want more money going into the European rivals of Google or Space-X. They want more money going to Volkswagen and Siemens. The entire European economic system is built around supporting the established legacy corporations with 100+ year old histories over anything else.

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u/Moriartijs 6h ago

European post ww2 economic system is built around USA and its bafling to me that usians want to change that. :

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u/TheBSQ 5h ago

The U.S. definitely has its flaws that can be heavily criticized but many parts of the EU have tax regimes that don’t work well w/ high growth companies. 

I was reading an article, I think about Italy, where the gist was, there were a lot of upfront tax & regulatory cost-burdens where part of required accurately forecasting the future revenue, but needing to pay before that revenue materialized.

As an analogy, imagine having to pay next year’s income taxes today. 

If you have a long-term steady job where every year you make a steady income and pay a steady tax, it’s fine. 

You’re making €X each year and paying €Y each year. It’s fine. 

But if it’s your first day of your first job, it’s like, “wait…how do I pay the tax on future income before I’ve even earned any income?! I need to get paid first before I can pay my taxes!”

I’m slightly exaggerating, but the point was the administration of the regulatory & tax systems just didn’t work for startups for a silly timing issue where you had to pay stuff before you had income, and if you needed to use that money to grow to earn that future income, you’d end up paying too much cuz having to pay undermines your ability to grow. 

But if you paid less, then grew, and your future income was good, you’d get accused of lying to evade taxes when you started.

It was this dumb lose-lose situation for startups who had high upfront costs but unknown future income streams. 

Spend money you don’t have that undercuts your growth (and negates the need to have spent that initial money since the future income don’t materialize), or don’t spend money, grow, and then get accused of trying to evade taxes & regulations. 

It’s not just about “paying your fair share” but administrative & regulatory systems that just weren’t structured well for startups, innovation, and growth. 

But, there is also the long-standing issue of segmented capital markets & the regulations around capital requirements which has seemed stalled for a while. 

Glad to hear Trump’s idiocy may finally be creating the needed push to finally address these long-standing and well-known issues with European capital markets. 

In the end, I think the irony of it all is Trump’s belligerence will actually benefit the EU in the long run by spurring them to do the things they should have done long ago, but were able to continually delay because the US options were available (be it capital Markets, nato security / military stuff, credit card systems, national intelligence, etc.)

But, it means the EU is gonna have to take some things on it manages to successfully avoided for a while.

There will be growing pains, but it’s good to see Europe realize it’s gotta finally move on some of these initiatives.

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u/evilgenius12358 8h ago

The capital is being drained, but only because capital moves, and capital moves to where there is stronger ROI. That ROI is in the US, not the EU.

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u/Moriartijs 7h ago

Thats the problem and this is first step to mitigate that. IMO there cant be a true single market without single capital market. Single deep capital market with high liquidity is what allows small startup to become global corporation fast rising billions. Every startup needs cash to burn. Where in EU can you make huge IPO?

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u/oblio- Romania 8h ago

Capital moves if it's allowed to move. Try extracting that capital in China. 

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u/evilgenius12358 6h ago

And if capital cannot move it is not being allocated efficiently and stagnates, or worse, as is the case with China, is misallocated, and causes harm, creating artificial bubbles, hurting the broader economy and populace.

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u/didootd 6h ago

See this is the libertarian point of view-china and its planned economy is so bad that they are now the worlds manufacturing hub and has significant leverages to use globally.

Although it is a fact that china is an economic powerhouse now, this doesn’t mean I support this type of economic system. But saying that it is more efficient to let eu capital stay in the US and bring no benefit to Europeans is just counterintuitive… it would bring much greater growth if this capital pays for a startup rather than for spacex stocks

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u/evilgenius12358 6h ago

Investors believe otherwise and adding barriers to "trap" capital does not work.

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u/oblio- Romania 6h ago

Yah, buddy, just like 2000, 2008 and the current AI bubble are fully rational and efficient allocations of capital. 

Also ask the Irish how the Great Efficient British Allocation of Capital of 1845-1852 went.

Sovereignty has its benefits. And life is more than "efficient allocation of capital". Heck, even the economy is more than that. 

Get the f out of here. 

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u/Lazy_McLazington 9h ago

No meaningful cutting edge innovation? Wasn't BioNTech (a German company) the first to design and engineer the specific mRNA technology used in the COVID vaccine?

ASML in the Netherlands holds a global monopoly on EUV lithography. Intel and TSMC rely on EUV machines provided by ASML to make the chips used in the LLMs and robots you covet in your post.

Airbus (French) providing aircraft with such efficient engines forcing Boeing's hand to create the MAX which hasn't fared so well. The CFM Leap 1B engines they use are a joint venture between US and French companies and forced the industry forward with high efficiency engines.

Renault, Airbus, BioNTech, Bayer, ASML, Siemens; Europe is plenty on the cutting edge. Your assessment is just not based in reality.

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u/WorldLeader United States of America 4h ago edited 4h ago

Wasn't BioNTech (a German company) the first to design and engineer the specific mRNA technology used in the COVID vaccine?

Nope, it was a Hungarian + American scientist at the University of Pennsylvania.

Katalin Karikó, PhD, and Drew Weissman, MD, PhD, invented the messenger mRNA technology that serves as the foundation of the Pfizer-BioNTech and Moderna vaccines for COVID-19. The scientists received the world's most prestigious awards for their discovery science efforts, including the Nobel Prize in Medicine, Lasker-DeBakey Clinical Medical Research Award, the Breakthrough Prize and the Albany Medical Center Prize in Medicine and Biomedical Research.

Also,

ASML in the Netherlands holds a global monopoly on EUV lithography.

ASML licenses their tech from the US government, because the research was done at the major US national labs.

From a 1999 article:

The agreement resolves the conflicting issues of how to bring ASM Lithography (ASML) into EUV Limited Liability Corp., a consortium of three U.S.-based semiconductor manufacturers, U.S.-based lithography vendors, and researchers from three DOE national labs. The consortium has been working to bring EUV lithography to the market by 2006 or sooner, when 70-nanometer (0.07-micron) design rules are expected to be required. The agreement includes quid pro quo commitments designed to quiet critics who had charged that the participation of a foreign supplier in EUV LLC would consistute a giveaway of intellectual property developed at the DOE's national laboratories.

Emphasis mine. ASML successfully commercialized cutting-edge tech that was developed by the US taxpayer. It's why the US Congress can tell ASML who they can and can't sell to internationally.

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u/enterjiraiya 8h ago

Those are all major companies, bioNtech had been around a while before the COVID vaccine made it a major name.

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u/keralaindia 5h ago

Only comment that gets it. Europe is a regulatory hellscape for individual companies. And not in some anti environmental way either. So many different rules and anti-business legislations. The US has a significant advantage being a federation of states.

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u/Schlummi 16m ago

1.) The US has around 70k start-ups, EU around 60k. EU is also known for its many mid sized companies. And for still having an actual industry. Many of them are world wide leaders in their fields ("hidden champions"). If the US would really be leading in innovation, then its import-export stats for physical goods would be more balanced.

2.) The EU has a very fractured market, yes. The limited size of the domestic market is a disadvantage for many european companies. EU has reduced the hurdles, but there are of course still massive challenges for an italian company to be active in germany. Those are also not necessarily gov regulations. As example: good luck reaching good sales numbers for a french movie in germany, if the soundtrack is not in german. Good luck in B2B business without a local sales team that speaks the local language fluently. EU can ensure that regulations for EU market are the same - but it can't remove difference in language, culture etc.

3.) Economic growth in the US is heavily driven by tech. This is seen as a risk, one-trick pony. Fast economic growth is also not necessarily a good metric - usually do underdeveloped countries grow a lot faster than fully developed countries. Major EU countries struggle with an aging population and this will - for the forseable future - limit growth. The fractured EU market limits growth. The differences in languages, cultures, habits etc. limit growth. This can’t be overstated - one of the reasons why walmarts bankupted in germany were cultural differences. EU also has better workers rights - which is bad for shareholders, but good for employees. What I'm trying to say here is: there are plenty reasons, some are surely "EU made". The majority is not. And it got nothing to do with "cutting edge technology" or innovation. That's where EU is still doing well. Even your own two examples already indicate this: you refered to "humanoid robots". Among "non humanoid robots" - industrial robots, with their massive sales numbers and huge impact on other industries: the big brands are european, japanese or chinese. In "adjacent fields" as CNC machinery its similar. LLMs: yes, same as in other "tech" industries is the US ahead. But currently its debated if these massive upfront investments will pay off one day. And for which company it will pay off - and for which company it'll be sunken investments. A popular example for this is google. Google obviously needs AI to improve its search results. But will this generate additional income for google - or will it simply canibalize the "traditional" search engine usage? Google surely needs it, to stay competitive. But for additional income - aka growth - it also needs to find new, additional sources of income. Which is a problem for AI in general. The "real use cases" will often enough be companies in "traditional" fields that "handle" lots of customer data. E.g. ERP software companies as SAP or automation companies as siemens could use AI to generate profits. In many of these industries is EU doing well.

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u/didootd 11h ago

The lack of capital markets is due to European capitalists being more than happy to put their money in the US. Also, my example is not with the startups but with the multinational corporations that were started in Europe - German automakers in particular.

I agree that the decisions are within European control but it’s important to see what is happening as it is. Do you not agree that there is a significant capital leaving EU and invested in US?

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u/aleph_iskar 10h ago

The lack of capital markets is due to European capitalists being more than happy to put their money in the US.

Because the returns are higher, for the reasons I outlined above.

Do you not agree that there is a significant capital leaving EU and invested in US?

I agree, but I think the solution is to fix Europe, not to limit capital, where I believe things are heading.

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u/Moriartijs 9h ago

Where is the capital limiting part? There is no dept and liquidity in european markets to do huge IPOs, offerings and what not, this aims to change that

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u/didootd 9h ago

I think we are in agreement in some areas. It’s my belief that capital controls are part of fixing Europe. Keeping funds here is part of creating a eu capital market.

There are issues here as well-keeping all that capital would lead to further increase in asset prices which is not great for working class people or for anyone not owning their home.

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u/quarantinedbiker 8h ago

This isn't just about startups and VC though. Anyone raising or investing funds faces market fragmentation in the EU, which adds a lot of friction when trying to access the many EU investment markets. That by itself can be enough to move billions of euros abroad.

Now true economic growth is ALSO an issue. Although to which extent US GDP growth is sound and won't just be wiped when the AI bubble pops is another matter entirely. Circular financing and hundreds of billions in speculative loans/investment does cause GDP to go way up, but the real economic benefits of this particular sector of the economy aren't so evident (relative to how insanely large it is) and the risk of the bubble popping causing the financial crisis of a lifetime is very real. GDP is a bad measure of "economic success" at the best of times, and we aren't living in the best of times.

Both the issue of market fragmentation and of a lacking innovation sector need to be addressed, but I don't see the point in getting mad that the EU didn't address every issue all at once? This is definitely a step in the right direction that does partially address why the EU is so deeply invested into the US.

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u/didootd 12h ago

This is very true because it has always been better roi to put your money in the US. This has always been part of the exorbitant privilege of the dollar as the money made by BMW selling a lot of cars to Americans is then invested back in the NY stock market-all funded by the fed printing money

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u/Zealousideal-Shoe527 12h ago

i agree with your take. i also don’t see any way of changing that in the near future. We love holidays, social benefits, spending money on RE and seeing other people work.

we hate working more, paying more taxes, learning how to invest money other than keeping it in the banks and RE.

we are too energy dependent, we could use nuclear, solar and wind, but GREEN oposition is to strong.

we have 27 members (EU), for any siginificant change in our legislation we need an OK from all countries.

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u/lmolari Franconia 11h ago

What? Where is the connection between "we want to work less" with "lets weaken our market by giving the US money to invest wherever they want"?

Do you think we'd need to work more, if we invest into our own future instead of giving the money to the US to invest in theirs?

You sound like some kind of MAGA AI bot, spilling out random hatred of EU socialists.

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u/oblio- Romania 8h ago

What? We have money, that's the entire point. 

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u/Moriartijs 10h ago

I thought we love paying more taxes, its like our whole shtick :) We dont invest in stocks tho thats true. Most of investments in my country happen through pension plans funded by said taxes. European households save signifcantly more than American, problem is where those savings go. IMO people would invest more if there were huge European stock market with clear regulation.

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u/EquivalentBorn9411 10h ago

Perhaps a bit more. But not me. Basic problem is. In europe profit is bad. Workers and government Take everything. Why would i invest here?

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u/Pas__ 10h ago

not all 27 members need to be on board, but of course that's how it makes sense usually.

when markets are more competitive, and consumers can choose from a wide range of suitable investment products, behaviour does change. In the Netherlands, Sweden and Denmark, households manage their assets in a similar way to their US counterparts, holding only 10-20% of their financial assets in liquid forms.

https://www.ecb.europa.eu/press/key/date/2024/html/ecb.sp241122~fb84170883.en.html

people in Poland work as much as people in the US

the difference is productivity

https://ourworldindata.org/rich-poor-working-hours

https://en.wikipedia.org/wiki/List_of_countries_by_average_annual_labor_hours

yes, energy costs is a serious problem. housing crisis too.

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u/Master_C117 10h ago

Sounds like your friends are your enemies

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u/Chemistrysaint 4h ago

Or maybe because the business environment in the US is more conducive to delivering investment returns than the business environment in the EU.

If investing in EU companies was a good investment then Europeans would *choose* to invest in them

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u/Moriartijs 1h ago

Thats the point. This makes business environment much better.