Welfare and Savings: Opportunities for Europe

• Europe must strengthen its political and economic unity to balance its relationship with the United States and address global challenges.
• Finance represents a strategic sector: Europe’s asset management industry is fragmented and less competitive compared to the American one.
• A recent agreement between Generali and BPCE aims to create the leading asset management platform in Europe by revenues.
• Another fundamental area is technology: Europe is lagging behind in the commercialisation of research and innovation compared to the United States and China, and needs better access to venture capital as well as European partnerships to help bridge the gap.

 

The balance in the world has changed rapidly in recent weeks. It is now evident that to play on the chess board of geopolitics and economics, Europe can no longer afford its greatest weakness: internal division. The United States is our essential partner, but for this relationship to be balanced, it is necessary to act as a true political and economic power, capable of imposing a single voice and vision on the great challenges of contemporary times. Recently, Mario Draghi strongly reiterated this to the European Parliament. We cannot say no to everything; Europe must act as a single state.

Strategic sectors such as technology and defense can no longer be reduced to domestic availability; they must be communal. This also applies to finance: to grow and create value for all stakeholders, European multinationals must embrace cross-border logic. One of the sectors where the comparison between the United States and Europe is severely to our disadvantage is the asset management industry, starting with pensions. The European demographic structure has long required the support of private pension funds alongside the state. Moreover, these funds are by definition long-term investors, essential for the growth of the real economy, both European and Italian. Yet, the sector is severely undersized: the level of pension assets in the EU, where the population is significantly larger than in the US, is about 10.7 trillion euros (concentrated in a few countries such as the Netherlands and Scandinavia), which is a quarter of the estimated 38.1 trillion euros in the United States. The stock market – one of the tools for employing pension savings –is 68% of GDP in the EU, while in the US it is 170%. Asset management is a powerful factor for the well-being and economic development of European citizens. Nevertheless, in Europe, this sector is still small and fragmented in comparison to the US. European companies struggle to compete with American giants because they manage smaller masses, and in asset management, the size of assets is crucial for profitability and to generate the economies of scale necessary to invest in innovation, attract investments, and recruit the best talent.

The six largest asset managers in the world are American, seven of the top ten, and fourteen of the top twenty. To give an immediate idea: the top three American asset managers hold 23 trillion euros, the top three Europeans manage 7 trillion. This is the difference in scale we must face making the matter of the union of capital markets increasingly necessary and urgent in Europe, alongside transnational mergers among operators.

Growth and competition can only be achieved by creating a system. The agreement recently signed by Generali with BPCE for the creation of an asset management platform follows this logic: it is a friendly agreement, signed on equal terms between two continental champions, which would create an entity of 1.9 trillion euros, becoming a world leader in asset management for insurance clients. And let it be clear: Italian savings remain fully protected. Italian and European laws require insurance companies to decide how and where to invest Italian savings down to the last euro, regardless of who the asset manager is that materially conducts the purchases and sales. Generali will therefore maintain full control over the use of the savings entrusted to it by its clients, exactly as it does today. Moreover, the golden power procedure, which always applies to transactions of this kind, will allow the government to confirm the existence of all necessary guarantees and assurances to protect national interests.

Another area where Europe must demonstrate its strength as a unified community is technology. Although our continent has a good position in fundamental research and patenting, much of the knowledge generated by European researchers is not exploited commercially. We do not have any "innovation clusters" in the global top ten where the United States have four and China three. European companies focused on technological innovation should be able to access venture capital more easily through a single, large pool of European savings. Recently, the European Commission mobilised 200 billion euros for artificial intelligence projects. This is excellent news, but a continued commitment is needed to increase competitiveness and build a strong system. The underlying logic of the technology sector is similar to that of the financial industry, and therefore intra-European alliances and partnerships must be created to build scale, attract more investors and recruit more talent.

After World War II, Europe represented a grand political, economic, and social experiment, an almost unique example in history. Let's work to ensure it continues to be so.