Savings and investments union (SIU) - Enhancing the financial system's efficiency

According to the EU, the Savings and Investments Union (SIU) aims to create better financial opportunities for EU citizens, while enhancing the financial system’s capability to combine savings with productive investments.
The main objective is to make capital markets more efficient and attractive for citizens and businesses by reducing barriers, which can lead to more investment both within and outside the EU, particularly in strategically important areas like technology and climate transition. Therefore, the SIU aims to channel household savings into more productive investments as a strategy to enhance the EU's financial system and competitiveness.

The SIU strategy also aims at developing and enhancing supplementary pensions. Therefore, in Q4 2025 a review of pillar 2 Occupational Retirement Provisions (IORP) Directive and pillar 3 pension products such as the Pan-European Personal Pension Product (PEPP) Regulation will be conducted.

As Europe is generally a continent with a strong saving mentality, the core idea of the SIU is to create a financing system to channel investments in the EU’s strategic objectives. All current challenges (such as climate change or geopolitical situations) require significant investments.
The Draghi report on EU competitiveness¹ estimates that an additional EUR 750 to  800 billion per year by 2030 (further impacted by increased defense needs) are required. Much of these additional investments need to be allocated to small and medium-sized enterprises (SMEs) and innovative companies, which cannot rely solely on bank financing.

The key to this transformation is the vast potential of retail savings that would need to be invested into adequately designed investment solutions and targeted tax incentives. 

ALFI has published a set of concrete actions in March 2024:

1. Mobilizing younger generations by financial education in school, for students and also by promoting investment accounts for children
2. Strengthening and modernizing the European pension system, including pan-European pension products (PEPP)
3. Use and promotion of Investment Savings accounts
4. Supervisory convergence, while maintaining national expertise by upholding a decentralized supervision model
5. Supervisory convergence, while maintaining national expertise by upholding a decentralized supervision model
    

Capital Markets comparison

In its report published on November 2024,² the Association for Financial Markets in Europe (AFME) unveils the current European Capital markets situation.

Their key findings were:

• EU Capital Markets Falling Behind: Despite some cyclical gains, the EU lags behind the US, UK, and China in most key indicators, such as access to capital, global interconnectedness, and market liquidity. The EU’s capital markets remain fragmented
• ESG Leadership, but Growth Slowing: The EU continues to lead in sustainable finance, with ESG bonds accounting for 13% of total bond issuance in 2024, ahead of the US and UK. However, growth in EU ESG issuance has not kept pace with growth in non-ESG issuance, with the overall share of ESG issuance down from 15% in 2021
• Deteriorating Intra-EU Integration: The report highlights a worrying decline in financial integration within the EU, a trend also noted by the European Central Bank
• EU Securitisation Market Remains Underdeveloped: The EU securitisation market continues to trail behind those of the US, UK, and Australia. Currently, only 1.9% of outstanding EU loans are transformed into securitized vehicles or loan sales, compared to 7% in the US, 2.8% in Australia, and 2.2% in the UK
• Widening Market Disparities: Northern European nations, such as Luxembourg and the Netherlands, have greater access to finance, while countries in Eastern Europe lag behind
• EU FinTech Ecosystem Stalling: Private investments in FinTech remain lower in the EU than in the US and UK, limiting the region’s progress in digital finance. However, the EU has taken a leadership position in the issuance of tokenized bonds, accounting for 20% of the global market in this emerging area

Key development steps and targets:

• Savings and Investment Account (SIA): a special type of account designed to complement everyday bank or savings accounts. With a minimal contribution, SIAs shall offer individuals the opportunity to invest in different products such as shares, bonds, or funds in a simple and accessible manner. The European Commission is encouraging all Member States to establish these accounts to ensure broader access and maximize their benefits for citizens across the EU
• The European Commission has adopted a financial literacy strategy to help citizens better understand investment principles, opportunities and risks. Target is that EU citizens will benefit from investing in capital markets, to get higher returns from their savings (boosting household wealth and retirement security)
• EU businesses and the economy require more capital and more financing options in order to grow (including innovation and new jobs). Public funding alone is insufficient and so capital markets have to play an important role
• The fragmentation in EU capital markets must be reduced as it holds back growth and prevents EU citizens and businesses from benefiting from a single market effect
• Supervision: finally the EU needs to ensure that all market actors receive the same supervisory treatment regardless of location in the EU and therefore create a playing field that supports competition and investors’ confidence

Upcoming Milestones:
Below are the milestones that are going to be undertaken in the next quarters:

Outcome:

By activating Europe’s private financial assets (which are invested dormant in bank deposits) the EU can accelerate growth in Europe and create a new dimension of financial market size for investments.

The success of the SIU is highly dependent on private market actors that need to come on board. As the SIU is not the first attempt to mobilize the saving of retail investors there are a couple of critical factors, such as:

• Market developments that are not aligned with the plans of the SIU
• A lack of political will from its member states could prove fatal (for many, the latest EU proposal is merely a redesign of the CMU⁴ )
• Whether ordinary savers will want to invest their money in EU projects and will people trust EU representatives enough to let them steer their financial decisions (private money for central planning)
• The EU Commission’s design of the SIU seems to represent the EU’s tendency toward regulation, control and centralization

In conclusion, the SIU may become a big step towards the establishment of a stronger EU capital market. However, it is highly dependent on the implementation and market developments to become a success.