The Continent Continues to Lag Behind

Despite an abundance of savings across the continent, Europe continues to struggle with converting those reserves into productive, growth investments. The imbalance is evident: while European startups emerge with promise, many end up looking across the Atlantic for the financial firepower needed to scale.

  • Markus Villig, the CEO behind Estonian ride-hailing firm Bolt, has seen this firsthand. While attempting to secure funding in Europe, he encountered nearly every major venture capital firm on the continent.
  • Yet, the lion’s share of Bolt’s more than $1 billion in funding ultimately came from American backers. The issue wasn't a lack of innovation. It was the willingness to embrace risk—something European investors have historically lacked.

This risk aversion, common among EU investors, continues to drive promising companies into the arms of U.S. capital markets, or worse, stalls their growth entirely. Villig estimates the cost of this conservative stance is vast—3 to 5 trillions of euros in potential wealth creation lost.

Brussels’ Push to Unlock Investment

European policymakers are no longer ignoring the issue. Capital markets reform has climbed to the top of the agenda in Brussels, with European Commission President Ursula von der Leyen prioritizing a more unified financial system in her second term. A new “savings and investments union” initiative is under way, with the aim of channeling Europe’s dormant household wealth into productive ventures.

  • Among the proposed measures: reviving securitization markets, harmonizing cross-border financial supervision, and creating easier pathways for retail investors to access capital markets.
  • The initiative also revives long-stalled efforts to unify insolvency laws and finalize a banking union—moves that, if realized, could help reduce structural fragmentation.
  • Yet, Europe’s capital markets remain fractured. Rather than operating under a unified regime, the continent relies on 27 national systems—each with its own regulators, rules, and investor norms. The exit of London, formerly Europe’s financial nerve center, has only deepened the problem.

This fragmentation has real costs. EU companies raise just a third as much financing from capital markets compared to their U.S. counterparts. Cross-border investment within the bloc remains limited, and the continent’s fragmented infrastructure discourages the kind of bold bets that fuel America’s startup economy.

Pensions Not Investments

The push for a Capital Markets Union (CMU) isn’t new. Launched a decade ago, it was designed to create a seamless investment landscape across the EU. While the project has achieved some marginal successes—such as easing listing requirements for small firms—the results have largely underwhelmed. Bank lending still dominates, and the hoped-for equity culture has yet to materialize.

  • Despite repeated pledges, meaningful integration has remained elusive. Polish Finance Minister Andrzej Domański recently underscored the sentiment, reflecting a common frustration: Europe has spent years talking about capital markets reform—with little to show for it.
  • Beneath the regulatory and structural challenges lies a deeper cultural divide. In Europe, strong welfare systems and generous pensions reduce individual pressure to invest for the future.

This has stifled the emergence of a broad equity-owning culture, which is foundational to risk-taking in the U.S. financial system. Europeans are more likely to preserve wealth than to grow it aggressively—particularly through equities or venture funding.

Sweden's Lead

While much of Europe grapples with how to ignite its capital markets, Sweden offers a compelling counterpoint—a model where investing has become second nature for much of the population. Generations of Swedes have grown up with regular exposure to equities, not just through employer pension schemes but also through a steady drumbeat of public messaging that frames investing as a cornerstone of financial well-being.

  • At the heart of this investing culture is the investeringssparkonto (ISK)—a broad, tax-advantaged account designed to make equity ownership simple and attractive for ordinary savers.
  • The ISK has been instrumental in democratizing access to stocks and funds, drawing participation from all corners of society. From blue-collar workers to professionals, the message has been consistent: investing isn’t just for the wealthy—it’s a national habit.
  • This widespread engagement has had measurable effects. Market liquidity has deepened, and even smaller firms have been able to tap local investors for funding. It’s a virtuous cycle that reinforces itself: as more citizens invest, capital becomes more accessible, and innovation flourishes.
  • Swedish policymakers point to this cultural alignment as key. Across the political spectrum, there’s a shared understanding that robust capital markets are not only a tool for economic growth—but also a platform for inclusion. The result is a market ecosystem that functions efficiently and locally, without relying heavily on foreign capital.

In a region searching for answers, Sweden’s experience suggests that structural reform alone is not enough. Without a cultural foundation that normalizes equity investment and encourages participation, even the best-designed financial systems may fail to deliver the innovation and growth Europe urgently needs.

Disclaimer

Please note that Benchmark does not produce investment advice in any form. Our articles are not research reports and are not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Christian Lue / Unsplash.