Europe’s capital markets need more than capital

The geopolitical tensions of recent years have taught Europe a simple lesson: strength requires autonomy. This applies to energy, technology and defence. But it also applies to capital markets.

The European Union’s Savings and Investments Union (SIU) is designed to address this challenge. Its objective is to deepen Europe’s capital markets and mobilise the more than €10 trillion in household savings across the continent for future investment.

Yet autonomy is not achieved simply by mobilising more capital. It also requires Europe to control the information on which capital allocation decisions depend -  the data, ratings and analytics that tell investors where risk lies.

Capital markets run on information

Autonomy in capital markets ultimately means the ability to act independently, particularly in times of growing geopolitical tension. Europe’s ability to do so remains constrained if it continues to depend on non-European providers in key areas of financial market infrastructure.

When discussing this financial-market infrastructure, many people first think of stock exchanges, banks and payment systems. These are undoubtedly indispensable. But capital markets are not driven by the flow of money alone. Above all, they function through information. In essence, capital markets are information markets.

Investors make decisions based on data, metrics, indexes, research, credit ratings and risk models. All this information shapes how investors and issuers assess risks, make decisions and allocate capital. Those who provide the informational foundations of the market help define standards, influence perceptions of risk and the financing costs of companies and sovereigns.  

Data, analytics and information providers are therefore far more than service providers. They are a strategically important component of the capital market ecosystem. A truly autonomous European capital market architecture requires not only exchanges and trading venues, but also the ability to generate and process market information independently, assess risks within their proper context and develop strong, independent market opinions.  

Alternatives create resilience

It is precisely here that Europe’s structural weakness becomes apparent.

In many areas of capital markets, the information that shapes market behaviour does not originate in Europe. This applies to major index providers, large parts of the financial data market, the main providers of market intelligence, and significant segments of the ratings and risk-modelling industry.

Across numerous strategically important areas of the capital markets, non-European providers hold dominant positions. This creates vulnerabilities and reduces the resilience of the system.

Few would expect US providers of critical information and analytical services to Europe’s capital markets to suddenly cut off access to European users. Yet recent years have demonstrated how quickly previously unthinkable scenarios can become reality. Europe’s experience with Russian gas showed that heavy dependence on one supplier often appears manageable until a crisis reveals the true cost. It is therefore wiser to build resilience proactively than to wait for the next crisis before acting.

The key question is: would European capital markets continue to function smoothly in a critical situation if essential data and information services from outside Europe were no longer fully available? At the very least, that is open to doubt.

Even without such extreme scenarios, Europe may face disadvantages when it relies predominantly on non-European providers. Numerous academic studies suggest that national perspectives and institutional backgrounds can influence perceptions of economic risk. When assessments and analyses are predominantly shaped by a single viewpoint, the risk of systematic bias increases. European companies and sovereign issuers often bear the consequences, as US-based data, analytics and information providers wield considerable influence over global market perceptions of risk and the associated cost of capital.

Strengthening Europe‘s information sovereignty

Building European alternatives is not an act of protectionism. It is an exercise in strategic diversification and responsible risk management. The same principles that apply to supply chains, energy security and defence should also apply to financial and capital market information. A stronger European position in this field would not only improve resilience. It would also enhance Europe’s influence in global capital markets.  

The Savings and Investments Union will realise its full potential only if Europe does more than mobilise capital and harmonise rules. It must also reduce critical dependencies. Creating an independent European ecosystem for data, analytics and market intelligence is not a peripheral issue. It is a strategic prerequisite for trust, competitiveness and financial sovereignty.

This article was recently published in:

• Börsen-Zeitung (Germany)
• Expansion (Spain)
• Milano Finanza (Italy)