Boosting Europe's Competitiveness: German Insights on Capital Markets

By Dirk Schmitz, Head of Germany, Austria and Eastern Europe at BlackRock

Deeper and more integrated European capital markets are essential for economic growth and prosperity across the continent. Recently, I spoke at a panel in Brussels about how the Capital Markets Union (CMU) – now rebranded as the Savings and Investment Union (SIU) – can strengthen Europe’s competitiveness. While there is no easy fix to the challenges ahead, I would like to share some success stories from Germany, which may provide useful guideposts on how capital markets can help fuel growth.

Retail investment

Building robust capital markets in Europe is no small task. Structural barriers, regulatory complexity and a risk-averse investment culture in some countries present significant hurdles. Yet, encouraging progress is underway. Innovations in retail investment have transformed millions of savers into investors. According to our recent People & Money report, there are 113 million investors in Europe, representing over a third of the continent’s adult population. That’s an increase of 11 million since 2022.¹

Germany, with nearly a quarter of Europe’s investors, is a relevant case study on how simplifying investing can drive market participation. ETF savings plans have made regular investing an accessible habit for millions of Germans. Introduced in 2010,² these plans have grown rapidly in recent years, attracting people from all walks of life thanks to entry points as low as one euro – a trend fuelled by neobrokers and, subsequently, by traditional and online banks.

New research by extraETF shows that the adoption of ETF savings plans in Continental Europe has surged by 42%, from 7.6 million in 2023 to 10.8 million in September 2024.³ Germany remains a leading market, with 9.5 million ETF savings plans executed monthly, up 34% from 7.1 million last year. These figures reinforce extraETF’s forecast of 32 million ETF savings plans per month by 2028 across the region. Such progress reflects a success story for the CMU, showcasing how straightforward products like ETF savings plans can draw new investors into the market.

Blended finance

Beyond expanding retail investor participation, it is also essential to create effective structures where public and private capital can work together to meet the considerable investment needs triggered by the dual transition to a low carbon economy and to a more digital world.

The Climate Finance Partnership (CFP) – an alliance between BlackRock and the governments of Germany, France and Japan – is a good example of blended finance in action. By establishing an adequate risk-return framework, the CFP enables private capital to finance climate-related projects in emerging markets that would otherwise be deemed too risky by private investors alone.

Germany’s Growth Fund (Wachstumsfonds Deutschland) is another notable public-private partnership we support on behalf of our clients, investing in German and international venture capital funds. It provides financing for innovative start-ups and tech companies, contributing to Europe’s competitiveness.

Blended finance initiatives like the CFP and the Growth Fund offer powerful solutions maximising the impact of public spending and help fund the major transformations of our time.

Private markets

Europe has unique strengths it can build upon, first among which its dense fabric of small and midsize companies. Private markets can play a crucial role in financing European companies, especially innovative ones, providing alternative and additional sources of funding alongside traditional funding sources such as bank loans.

Private markets’ potential extends beyond the energy transition, supporting also advancements in other critical sectors, including healthcare. Take ITM Isotope Technologies Munich SE, a German radiopharmaceutical biotech company that BlackRock invested in on behalf of its clients. During my recent visit to ITM’s facility, I saw firsthand their pioneering work on targeted therapies for hard-to-treat tumours.

This can illustrate how private markets can provide long-term capital for European businesses striving to innovate and grow.

Pragmatic path forward

The CMU may be far from complete, but the progress I have seen – across retail investment, blended finance and private markets – offers valuable blueprints for the future. It is vital to focus on identifying the conditions that enabled these success stories so they can be replicated across the EU, adopting a pragmatic approach to put in place policies fostering investment, attracting diverse funding sources and supporting market efficiency.

Diversification

Diversification and asset allocation may not fully protect you from market risk.

Capital at risk

The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Disclaimer

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of December 2024 and may change as subsequent conditions vary. There is no guarantee that any forecasts will come to pass.