Competitiveness is once again at the top of the EU’s political agenda. Yet in capital markets – a cornerstone of any competitive economy – Europe is falling behind. On key measures of market health, including market capitalisation, liquidity and new listings, the EU lags behind its global peers - not just the United States, but Asia too – and the gap is widening. Without decisive action, this trend will only deepen, undermining Europe’s ability to finance its growth, innovation and strategic priorities.
Start with scale. Equity market capitalisation as a share of GDP tells the story: In 2025, the EU stands at just 62% - far below the US at 208% or Japan at 163% in. While other major economies have expanded rapidly, the EU has barely moved. Over the past two decades, EU equity market capitalisation has edged up only marginally, from 57.3% to 62%. By contrast, India has surged from 76% to 128% of GDP, and China from just 17% to 67%.
Liquidity metrics further highlight the challenge. In 2025, the EU’s equity turnover ratio - a key measure of market activity - was just 1.7, far below the US at 3.2 and China at 4.3. Investors gravitate towards deep, efficient markets where capital moves easily. Europe’s low turnover reflects weaker participation and reduced attractiveness as a venue for trading and investment.
The picture is no better for new listings. Over the past three years, IPO activity in the EU averaged just 0.05% of GDP, compared with 0.2% in the US and 0.15% in China. Meanwhile, corporate bond issuance also lags significantly at 2.3% of GDP in the EU versus around 4% in other major jurisdictions.
In short, investment, liquidity and market growth are shifting elsewhere. Weaker markets mean fewer opportunities for companies to grow, for savers to earn competitive returns, and for Europe to develop and fund the innovative firms that drive global competitiveness.
As former IMF chief economist Gita Gopinath’s recently argued in the Financial Times “everything has changed for the global economy”. The full impact of recent shocks and policy uncertainty will only truly start to trickle through this year. This makes it all the more urgent to remove unnecessary brakes on the functioning of the EU single market for corporates and financial markets.
With regards to financial services, it is worth emphasising that the EU still cannot reap the benefits of a truly single market for banking and capital markets. This constrains the efficient allocation of capital to the real economy and limits the ability of European banks and other market participants to achieve the scale needed to compete globally - particularly in capital markets where scale matters even more.
It is positive therefore that policy makers have recognised that financial services regulation can be a lever for change. In their December ECOFIN conclusions, EU finance ministers acknowledged that the financial services framework has become overly complex and that simplification is essential to restoring competitiveness and supporting economic growth. Crucially, they recognised that progress will require tackling not just new regulation, but also the accumulated weight of the existing rulebook.
A financial services omnibus is now key. Ministers have made it clear that they want a single, cross-cutting legislative effort to simplify the regulatory framework across all sub sectors of this heavily regulated industry. The responsibility now lies with the European Commission to translate this political direction into concrete action. Done right this can help reduce market friction and costs, improve market efficiency, strengthen liquidity and make Europe a more attractive place to raise capital.
The EU has begun to acknowledge the need for reform, but it needs to go further and faster if it is to truly compete with the US and Asia. The choice is clear: simplify, or slip further behind. Europe cannot afford to choose the latter.
