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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is dean of IE University and former prime minister of Italy
Every few months a new shock strikes Europe and every few months we reach for the old answers — a crisis-management summit and, eventually, an emergency package. A temporary fix to hold the line until the next blow arrives. Each response is reactive, often unavoidable, and ultimately beside the point.
The EU must acknowledge that we are currently going through a systemic shift. The global economy is being reordered around continental-scale blocs where power stems from size, level of integration and the dynamism of the internal economy. Against this backdrop, the EU’s central weakness is not a shortage of talent, capital or ideas. It is fragmentation.
In a world where economic weight translates directly into geopolitical clout, Europe’s internal divisions push it to the margins of decisions that will shape our future and deepen our dependence on others for the technologies and resources our economies need. Fragmentation is a strategic vulnerability and our competitors understand this better than we do.
Nowhere is this clearer, or the harm more self-inflicted, than in finance. Europe does not lack savings. But it is chronically unable to put them to work.
Year after year, the wealth of European households flows out to finance growth elsewhere, above all in the US, while our own companies hunt abroad for the capital to expand. In the real economy the US and EU blocs still belong roughly to the same league. The EU accounts for around 18 per cent of global GDP, against about 25 per cent for the US. But in equity markets the gap is a yawning one. US companies make up more than 60 per cent of the world’s investable equity; European companies account for only around 10 per cent.
None of this is accidental. After the last financial crisis, Europe made stability its overriding priority and rightly so. We rebuilt a system that had come close to collapse. That stability has been a major achievement and it must remain central to everything we do.
Yet stability alone has not produced a financial system that stimulates growth. Europe still finances itself above all through its banks, and the post-crisis architecture that made them safer was designed first and foremost to preserve stability, limit risk and prevent another systemic collapse. That remains essential but the same framework now also weighs on the lending capacity that firms need to invest, innovate and scale.
The framework does not need dismantling, but it does need recalibrating so that a banking system built to be safe can also finance investment, innovation and scale. A recent report estimates that simplifying the EU bank capital stack could unlock trillions in additional lending to the real economy.
This is the promise of the Savings and Investments Union (SIU). Its purpose is to turn the savings of European households, the continent’s most underused resource, into investment in Europe’s own future rather than someone else’s. That means giving banks the room to lend and creating capital markets deep and integrated enough for money to reach places where it is needed, while keeping intact the protections that make our economy resilient. An economy that finances its own ambitions and shares the rewards is both stronger and more autonomous than one that exports its savings and imports its dependence.
Most of the proposals for SIU are known and many are already on the table. What has been missing is the will to treat them as a single strategic choice, rather than a list of issues to be negotiated until all ambition quietly drains away.
This is why timing matters. This month, Ireland has taken up the presidency of the EU Council for the eighth time under an old Irish motto: there is no strength without unity. Few understand better what integration can achieve than the Irish, who have seen their own economy transformed within a generation by openness and the single market.
Ireland now has a rare opportunity to carry forward the ambitious One Europe, One Market agenda adopted by EU institutions in April. This is a roadmap with strict deadlines for completing the single market under the treaties we already have. It should be pursued with the utmost energy and completed in full.
The choice before us is more acute than we would like to admit. Either Europe builds the financial power to match its economic weight, or it accepts slow, managed decline into dependence and irrelevance.
In a fragmented world, scale is power. And for the EU, scale can only come from unity.
