Yesterday, ahead of the European Council meeting, the European Commission presented its proposal for a Savings and Investment Union (SIU) – a conflated approach towards banking and capital market integration. The communication rightly identifies the main obstacles that have long hindered the integration of European financial markets. On the one hand, capital markets remain underdeveloped because citizens’ savings are rarely channeled into financial assets. The proposal highlights the need for easier access to investment accounts, financial literacy programs, transparent and low-cost investment products, and a shift toward capital-market-based pension systems, including the promotion of auto-enrolment in occupational pension products. These measures could significantly increase participation in financial markets, boosting both growth and resilience.
The Commission gets the diagnosis right…
On the other hand, the Commission identifies structural barriers to financial integration. These include gold-plating, where national regulators implement EU rules with stricter national variations, differences in taxation, divergent supervisory and judicial practices, and capacity constraints among national regulators. These issues fragment financial markets and prevent the EU from fully benefiting from its single market. Notably, the Commission acknowledges that member states themselves are often the primary roadblocks, as they fail to implement reforms that would strengthen integration.
The Commission is right to highlight these barriers and to call for more harmonization. However, calling out national resistance is one thing — overcoming it is another.
…But lacks the bold reforms needed
Despite its ambitious tone, the communication follows the piecemeal approach of previous Capital Markets Union (CMU) Action Plans, which have driven incremental improvements but failed to achieve deep financial integration. In doing so, it seems to anticipate the same political resistance within the European Council that has previously stalled key initiatives, such as the European Deposit Insurance Scheme (EDIS) and the Crisis Management and Deposit Insurance (CMDI) framework.
As a result, the SIU package proposes legislative changes that are largely marginal, and not likely to remove the core obstacles to financial market integration. The draft suggests strengthening supervisory convergence rather than relinquishing national sovereignty, addressing taxation barriers without a firm commitment to harmonization, and promoting cross-border investment without enforcing true regulatory alignment. While these efforts are positive, they lack the decisive push needed to create a fully integrated European financial market. Additionally, a separate EU financial literacy strategy would only add bureaucracy, given that the EU and the Organisation for Economic Co-operation and Development (OECD) already have established joint frameworks and most member states are advancing their own initiatives.
It’s the member states, stupid!
The success of the SIU depends on national governments, and Germany has a particular responsibility to lead. As Europe’s largest economy and a key player in financial regulation, Berlin has the power to break the deadlock. However, Germany has often been among the reluctant reformers, largely due to domestic interests in protecting its banking system, particularly its regional savings banks and cooperative banks, which fear competition from a more integrated European market.
If Germany is serious about European financial sovereignty, it must move beyond rhetorical support and take concrete steps:
- Push for true Banking Union completion – Germany should drop its resistance to EDIS and work towards a common deposit insurance scheme, ensuring equal protection for depositors across the eurozone.
- Enable a more unified capital market – support for simplified cross-border financial products, tax harmonization efforts, and relinquishing national sovereignty in financial regulation would provide the necessary scale for European capital markets.
- Reduce barriers for institutional investors – pension funds, insurance companies, and private equity firms need a more favorable regulatory framework to boost equity investment and support long-term growth.
- Champion financial education and pension reform – the success of SIU will depend on retail investor participation. Germany must not only foster financial literacy but also reform its pension system, introducing a capital-market component. Sweden’s model, which combines public pension security with market-based investment, could serve as a useful blueprint.
Without strong action from Germany and other key member states, the SIU risks becoming another missed opportunity. The Commission’s diagnosis is correct, but the treatment plan remains too timid. Now, it is up to national governments to step up and make financial integration a reality.
Florian Heider is Scientific Director of SAFE.
Vincent Lindner is Financial Policy Officer at the SAFE Policy Center.
Blog entries represent the authors’ personal opinion and do not necessarily reflect the views of the Leibniz Institute for Financial Research SAFE or its staff.
