Europe has a paradox that is becoming harder to ignore. The continent needs more capital for technology, industry and economic growth, yet its citizens keep roughly €11 trillion in bank accounts. The money exists. The problem is that too little of it is financing European companies.
Less than a tenth of household financial assets in the European countries surveyed are held directly in stocks. In the United States, the share is far higher. Europeans still prefer deposits, property and pension products to direct participation in equity markets.
The European Union is now trying to change that behavior through new Savings and Investment Accounts. The idea is to let people invest even small amounts — perhaps €10 a month — in stocks, bonds and funds, ideally with favorable tax treatment.
As Daycom has previously noted, Europe’s capital-market problem is not a shortage of savings but a failure to convert vast private wealth into productive investment. A bank account preserves money, but it does little to finance a new company, a technology business or an expanding manufacturer.
Brussels is trying to close that gap. Eleven European countries already have specialized investment accounts, while another seven, including France, Portugal and Spain, are preparing to introduce them.
The ideal model is simple. Citizens invest regularly, receive a tax incentive and place much of their money in European assets. If roughly 70% of those investments remain in the region, household savings could become another engine of European growth.
Other countries already offer examples. Japan’s tax-advantaged individual investment accounts have helped drive record retail participation in markets. Britain has its own tax-favored savings structures, while the United States relies heavily on 401(k)s and other long-term investment vehicles.
But Europe faces a problem that cannot be solved by creating a new account type. Investing habits take decades to form, and in many parts of the continent history has taught households to value security over market risk.
Latvia is almost a laboratory for that problem. Households there keep about 87% of their financial assets in bank deposits, while only around 1.2% is invested directly in stocks.
This is not simply a question of financial literacy. Over several decades, the country has endured the collapse of the Soviet economic system, currency turmoil, bank failures and the global financial crisis. In some families, memories of lost savings are passed down almost as persistently as property.
When parents have watched their savings disappear more than once, it becomes harder to convince their children that buying stocks for 20 years is not gambling but a standard way to build wealth.
That is why an entire investment-education ecosystem is beginning to emerge in Latvia. Former bankers run YouTube channels, advisers sell online courses, and private communities teach people the difference between speculation and long-term investing.
The shift is most visible among younger people. They are more comfortable with brokerage apps, ETFs and fractional bonds, yet they often invest not in European companies but in American ones.
And that creates Europe’s second problem. Even when citizens leave bank deposits for the stock market, their capital often crosses the Atlantic.
Amazon, Tesla, Bank of America and large U.S. index funds can seem more familiar, more liquid and often more rewarding than small companies listed in Latvia, Portugal or Austria.
Europe could therefore succeed in teaching its citizens how to invest — and still end up financing the American market.
That is why the Savings and Investments Union is about much more than promoting brokerage accounts. Brussels does not merely need Europeans to move money out of deposits. It needs European assets themselves to become attractive enough to hold that money.
This is where structural weaknesses become difficult to ignore. EU capital markets remain fragmented, regulations differ across countries, tax systems are complicated and many national stock exchanges are too small.
Riga’s main market, for example, has only a handful of significant listed companies. For an investor seeking genuine diversification, the choice is so narrow that buying a U.S. ETF can feel almost automatic.
Governments could broaden local markets through privatizations and public listings of state-owned companies, but Latvia has moved more slowly than some Central and Eastern European peers.
Pension funds could also play a much larger role. Latvia’s mandatory funded pension system, introduced in 2001, had accumulated about €8.8 billion by 2025 — roughly 22% of the country’s GDP.
That is already a substantial pool of long-term capital. But when those funds are invested mostly abroad, they may help future retirees build wealth while doing relatively little to finance the domestic economy.
European policymakers are therefore increasingly interested in encouraging pension funds to invest more in local companies, including private businesses that have not yet gone public. The logic is to finance growth before an IPO and then create new liquid assets for a broader investing public.
Yet European policy often works against its own stated objectives. Some governments encourage citizens to buy more stocks while simultaneously increasing taxes on dividends or capital gains.
Latvia has raised taxes on investment income. Romania increased its dividend tax. The Netherlands proposed a system under which investors could face substantial taxes even on unrealized gains without selling their assets.
To an ordinary saver, the contradiction is obvious. The state says: invest more, take risk, finance business. Then it creates a more complicated or more expensive tax regime for the people who actually do so.
That is why tax relief for the new investment accounts may prove essential rather than cosmetic.
There is a third obstacle: trust in markets themselves. A deposit is simple. A saver knows the principal, the interest rate and roughly what to expect. A stock can fall 30%. A fund can underperform for years. For people without a family history of long-term investing, that volatility feels less like normal market behavior than danger.
In the United States, stock ownership became embedded through retirement plans, brokerage accounts and decades of market growth. In Europe, banks and public pension systems traditionally played a much larger role.
Changing that model means changing the financial culture of an entire continent. Citizens need to understand not only how to buy an ETF, but why a temporary portfolio decline does not mean their savings have disappeared.
The European Commission is also trying to strengthen centralized supervision of capital markets by expanding the role of the EU-level regulator. More unified rules should reduce costs, deepen liquidity and improve investor confidence.
But regulation alone will not make European companies more attractive. That requires deeper markets, more IPOs, faster growth and success stories that ordinary investors can see reflected in their own portfolios.
Latvia’s experience is especially revealing. What the country lacks is a generation of people who can tell their children: I bought shares for 20 years, and it helped me build wealth.
Without those examples, governments are competing not only with bank deposits. They are competing with collective memories of financial crises.
That is why moving even a portion of Europe’s €11 trillion in bank savings into investments will not happen because of a single Brussels directive or a new mobile app. It requires a long-term change in how Europeans think about risk, ownership and their financial future.
The stakes for the EU are unusually high. Europe needs hundreds of billions of euros for digitization, defense, energy and technological competition with the United States and Asia. If that capital does not come from Europeans themselves, the continent will either have to seek more financing abroad or accept slower growth.
The struggle over household savings is therefore really a struggle over Europe’s development model.
Europe has already taught its citizens how to save. The harder task now is persuading them that money does not only need to be protected — it can also be put to work.
And the real test will not be how many new investment accounts are opened. It will be whether European families stop seeing the stock market as a casino and begin treating it as a normal part of their financial future.
