The European Union (EU) is witnessing a significant decline in its capital market competitiveness, raising concerns about its economic future. Patrick Hansen, Circle’s EU Strategy and Policy Executive, highlighted several troubling trends on the X platform, suggesting that immediate action is needed to prevent further economic setbacks, particularly in tech-driven sectors like Artificial Intelligence (AI).
1/ Our EU capital markets are no longer competitive & this needs to change ASAP.
Otherwise there is zero chance we will be economically competitive, esp. in financing-hungry tech areas like AI.
A few concerning trends/facts & key solutions to this problem 🧵 pic.twitter.com/ZQRjyL9gIw
— Patrick Hansen (@paddi_hansen) May 25, 2024
Negative Trends in the EU Capital Market
Hansen outlined the following key issues:
- Equity Market Cap Decline: In 2009, the EU’s share of the global equity market cap was approximately 16%, compared to 34% for the United States. By the end of 2023, the EU’s share had dropped to 11%, while the US share increased to 45%.
- Dwindling IPO Share: From 2015 to 2020, the EU accounted for just 15% of the global Initial Public Offerings (IPOs) by value, less than half of the 32% share held by the US.
- Market Fragmentation: The EU has 27 Central Securities Depositories (CSDs) and 14 Central Counterparties (CCPs) operating within its borders, compared to the US, which has a single CSD and eight CCPs. This fragmentation hinders the development of a unified cross-border order book.
- Preference for Cash: In the EU, 32% of households hold cash, significantly higher than the 15% in the US.
- Decline in UCITS Equity Fund: In 2015, EU stocks made up 51% of the total assets in EU UCITS Equity Funds. By 2022, this figure had fallen to 35%, while the US share grew from 27% to 42%.
Can Crypto Save the EU Capital Market?
The question now is whether cryptocurrency could be the answer to the EU’s capital market woes. Hansen did not specify solutions, but the potential of crypto as a revitalizing force is worth considering. The upcoming implementation of the Markets in Crypto Assets (MiCA) regulatory framework could open the doors to crypto investors, potentially improving the EU’s market outlook. The US has recently shown support for spot Bitcoin and Ethereum ETFs, setting a precedent that the EU might follow.
As the EU seeks to address its capital market challenges, embracing crypto could be a pivotal step towards restoring competitiveness and economic growth.
