How to Stop Capital Flight and Fund European Business with European Savings

A defining moment for Europe is unfolding. For the first time, the debate on how to finance security and defense is being directly tied to a broader conversation about the future of the European financial system. President von der Leyen’s recent letter to the European Council establishes an explicit link between strengthening the EU’s defense capabilities and deepening its capital markets. This link, unprecedented in European policymaking, underscores a fundamental recognition: without a more integrated and efficient financial market, Europe will not be able to fund strategic priorities such as defence.

The reality is that neither any single European country nor the EU as a whole can mobilize enough public resources to meet the challenge of financing security. The same applies to other critical domains, including the green transition, digital innovation, and industrial competitiveness. In an increasingly complex and competitive global landscape, addressing these considerable financing needs requires the creation of a well-functioning European ecosystem that effectively leverages both public and private investment. An issue that has been at the core of both my Report on the Future of the Single Market and the Draghi Report on European Competitiveness.

European countries have one of the world’s largest pools of private savings, yet every year around €300 billion is invested outside of the continent, primarily in the United States, mainly due to the fragmentation of European financial markets. In the current period of turbulence, this capital flight is not just a financial issue; it is a strategic one. While the EU grapples with financing its strategic objectives and European businesses encounter challenges in accessing funding for growth and innovation, European citizens’ savings are indirectly contributing to the objectives and competitiveness of other major global powers.

It is crucial to try to change this dynamic and channel European savings towards the European economy. The conditions for progress are in place: the idea of a Savings and Investments Union has now entered the European Commission’s agenda, and the debate is shifting from ‘if’ to ‘how’. The urgency of the security crisis, combined with the structural impact of the green and digital transitions, makes it imperative for European countries to deliver concrete solutions swiftly.

To contribute to the ongoing debate and put forward concrete policy proposals, the AREL Single Market Lab in Rome, in collaboration with the Jacques Delors Centre in Berlin, the Jacques Delors Institute in Paris, and the IE Global Policy Center in Madrid, has drafted a policy note: Invest in Europe First!.

The strategy presented rests on two fundamental pillars. First, creating effective common financial instruments and tax incentives to keep European savings invested in European businesses. Some member states, such as Italy and France, have already introduced savings schemes that encourage investment in local companies. Now we need a European framework to make these tools accessible across the continent, directing capital toward strategic sectors such as the green transition, digital innovation, and defense. Second, fostering a more integrated and competitive European asset management industry. Today, large U.S. funds dominate the market, extracting value from Europe. To counter this, the EU needs a regulatory framework that strengthens its own financial players and capital markets, ensuring that investment benefits European businesses and citizens.

These two areas of intervention that are detailed in the policy note represent immediate levers to curb capital flight and mobilize European savings for Europe’s priorities. We need bold and effective interventions to address our most pressing financing needs, and we need them urgently. The work that will follow the European Commission’s Communication on the Savings and Investments Union will be crucial in delivering concrete progress. At the same time, other pragmatic initiatives are gaining traction and should be actively considered. In this regard, the European Competitiveness Lab initiative launched by Spanish Economy Minister Carlos Cuerpo offers an interesting path forward. By bringing together willing Member States to advance financial integration and unlock new investment opportunities, it can provide a concrete way to accelerate progress while maintaining an open framework for broader participation in the future.

The cost of inaction is high. If Europe truly seeks strategic autonomy, it must start financing its own future with its own resources. The time to act is now.