Lagarde: “European savers prefer low risk; guarantees needed to boost investments”

Brussels – Europe requires so many investments, but there is no money also because citizens have no trust. Revitalizing the economic-productive system of the EU and putting into practice the sustainability and innovation ambitions enshrined in the Green Deal requires so many resources that policy-makers are starting to think about new common debt instruments and push to tap into private savings that lie dormant, which, however, risk staying exactly where they are. There is a cultural problem, the European Central Bank President Christine Lagarde stressed at the 34th Frankfurt Banking Congress. “Typically, Europeans prefer low-risk, liquid savings products,” she said.

Families prefer careful, cautious choices. They favor earning a little less, not touching the little money set aside. Small savers, unable to diversify, either set aside resources for when and if they need to use them or prefer safe investments. It is a problem for Europe’s needs. “Once savings have been allocated by capital markets, they are not exiting towards innovative companies and sectors owing to an underdeveloped ecosystem for venture capital,” Lagarde pointed out.

Therefore, Europe is not just missing a capital markets union, which has to be realized. It also needs measures to persuade European households and small savers to put their resources at play. It requires giving guarantees in case of losses and an insurance system. “If households do invest, they often do not get the best deal,” Lagarde continued. It is a situation that needs to be addressed and resolved.

“We need savers in Europe to have products that are accessible, transparent and affordable,” the ECB president insisted, noting that this could help support innovative industries and the lack of innovation. “Since last year, Europe’s declining innovation position has come more clearly to light. The technology gap between the United States and Europe is now unmistakable,” Lagarde said.

Addressing the investment issue is necessary to close this gap in the name of a new, all-European competitiveness. The role that private capital, particularly of households, can play is not insignificant considering the amount of resources tied up. “In Europe, some 11.5 trillion euros is held in cash and deposits,” the president of the European Central Bank noted.

Therefore, policy — national and European — needs to create the conditions to change the habits and culture of Europeans to entice them to new investments, with higher risks covered, however, by guarantees. “In my view, a ‘European savings standard’ – a standardized, EU-wide set of savings products – is the best way to achieve these goals,” she added. A new idea for European debt securities to go alongside national treasury bills.

However, these European savings products need to be developed, and done right. “If properly designed and distributed, these products should be accessible,” Lagarde assured. They would be “simple to understand, available everywhere, and offering a range of investment options.” Moreover, if done right, they should also be “transparent, because they would be structured according to clear criteria, such as diversification, fee structure, and portfolio composition.” They should also be affordable “because financial service providers would be able to offer EU-certified products with less red tape, while standardization would lead to more comparability and competition. Both effects should bring down fees.”