Trust and the Societal Construct in European Capital Markets Growth

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Introduction

Europe’s capital markets have long lagged behind those of the United States, a gap with growing consequences. Despite the EU’s economic size, its stock and bond markets remain comparatively shallow and fragmented (European Securities and Markets Authority, 2024). This underdevelopment is more than a financial quirk – it poses a real challenge as Europe faces trillions of euros in investment needs for its future. The EU’s ambitions, such as the Green Deal (climate transition), digital transformation, and bolstering defense capabilities, all require vast amounts of private financing. Official estimates project about €5.4 trillion in additional investment needed from 2025 to 2031 to manage climate change, become digital and defend itself (Dorrucci, Nerlich and Bouabdallah, 2024). Public budgets alone cannot cover this; private capital must shoulder the lion’s share (Dorrucci et al. 2024).

Policymakers recognize that vibrant capital markets are essential to finance innovation and sustain growth. Healthy capital markets would allow European businesses – from green energy startups to defense manufacturers – to raise funds for expansion and give households more avenues to invest in the continent’s future. However, a host of structural and cultural hurdles deter many Europeans from investing and limit the capacity of markets to meet these financing needs. EU leaders often point to low financial literacy as a key barrier, suggesting that better education will draw more people into investing. But evidence indicates the problem runs deeper: a deficit of trust in financial markets and enduring socio-political habits may be the real culprits behind European citizens’ reluctance to invest..

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