In this episode of The Big Question, the European Banking Federation CEO shares his thoughts on ending fossil fuel investments and the problem with doing it too quickly.
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00:00Markets don't like shocks. Markets don't like extremes.
00:03We know that we can't fund our future.
00:06This is not a problem that we can shove under the carpet anymore.
00:14Hello and welcome to The Big Question.
00:18I'm Angela Barnes and today I'm joined by Vim Mesh,
00:22the CEO of the European Banking Federation.
00:26Now, 2024 has been a huge election year.
00:30We've had the European elections, we've had the elections in the UK,
00:35we've had the French elections and we've got the US ones to come as well.
00:39Now, when we look at what the market reaction has been,
00:43you know, running up to the elections and afterwards, it's been quite volatile.
00:47But let's talk about Trump and potentially what impact a Trump win
00:53might have on the markets in Europe.
00:57Well, it's interesting in a European show to start talking about the Americans
01:02and the United States, which is actually I can understand
01:06because of the impact it may have on markets.
01:09Having said that, if you look at the outcome of the European elections
01:12and a lot of people were worried about the entrance of the far right,
01:17you see that the centre has prevailed.
01:20So in Europe, I don't worry that much.
01:23If you translate that to other parts, like for instance France,
01:27the worry that could be there is the loss of the middle
01:32because markets don't like shocks, markets don't like extremes
01:36and depending on what kind of government we will see,
01:40markets will react accordingly.
01:42And that is a little bit the same as in the United States.
01:46Normally, if Republicans win, there is this almost knee-jerk reaction of markets upwards
01:51because Republicans may mean more emphasis on the economy,
01:56it may mean lower taxes and that is positive.
01:59Having said that, of course, the uncertainty in the market
02:03is how a newly elected President Trump would react to geopolitical development.
02:10So that's the uncertainty.
02:11But in this uncertainty, I would say most is certain.
02:15How do you see the future of the European Union?
02:22Wim, let's talk about the Capital Markets Union.
02:25High on the political agenda in Europe.
02:28On the outside looking in,
02:29it looks like little progress has been made over the last 10 years
02:33and of course it's high on the political agenda again for the next term.
02:36How do you think it's going?
02:38I agree with you that the Capital Markets Union was a great plan
02:42that stayed a plan for a long time.
02:44We analysed it to death but we didn't do anything about it.
02:47Having said that, the political momentum is now there.
02:51And the reason for that is obvious.
02:53We need to fund our transition to a more sustainable economy.
02:58We need to fund the digital transition.
03:00We need to spend more on defence.
03:02And every politician in Europe has made that calculation
03:06that they will not be able to fund that through tax money for citizens.
03:09And you need the banking sector to help there.
03:12But still that's not enough.
03:13Because banks give credits and they are limited by their balance sheet.
03:17So as the, I would say, the solution, you have the Capital Markets Union.
03:22We really need a deeper and more liquid Capital Markets in Europe.
03:27And we need to work on that.
03:28And we've analysed it to death.
03:30We've been talking for years about the inability to harmonise bankruptcy law.
03:34And really, I don't believe that.
03:36Every lawyer in every member state tells us
03:38that they have the most beautiful bankruptcy law in the whole of Europe.
03:42But it's all there to do the same thing.
03:44So we need to make steps forward.
03:46But even more importantly, we need to make steps forward with the tax regime.
03:51Because tax requires unanimity.
03:54And none of the member states want to give up their tax system
03:58to support the Capital Markets.
04:00And that's where we need to make progress.
04:02Yeah, it's potentially a pipe dream then, the Capital Markets Union.
04:07I don't think so.
04:08Because this is a typical case where the wall is coming towards us.
04:12We know that we can't fund our future.
04:16Where European citizens cannot fund their pension.
04:19Where we are not able to fund our defence.
04:21We are talking about competitiveness and strategic autonomy.
04:25If we don't do it now, we just lose out.
04:28This is not a problem that we can shove under the carpet anymore.
04:31So is it essentially then, if member states don't embrace the Capital Markets Union
04:36and move forward on things like tax,
04:38is Europe simply going to continue to fall behind the US and China, for example?
04:44I am an optimist.
04:45So I don't like to have fallen behind already.
04:50But we may fall behind if we don't seriously make work of investing in our own continent.
04:56Investing in productivity.
04:58Investing in the ability to fund ourselves.
05:00And one of the frustrations that we have is we have brilliant minds on this continent.
05:04But everybody always tells me that a fintech or a brilliant tech solution,
05:09the first 20 million of their company, they invest in Europe and they build in Europe.
05:15And the moment they hit 20 million, they go over the Atlantic to the United States.
05:19Because the capital markets and the private equity are better developed.
05:24So we need to jump over our own shadow.
05:26It is really so clear.
05:28And it's not only to move for businesses.
05:30It's also for the future of our citizens.
05:32Because they need to be able to invest.
05:35Because there is trillions and trillions sitting aside on savings accounts.
05:40And actually, with inflation, you're slowly losing money.
05:43So you want to give that share to citizens as well.
05:46So we're ready to help, but we need to move.
05:54Now, if EU citizens don't start investing then,
05:57rather than keeping money in a bank account, gaining minimum interest on savings,
06:03how far could European citizens fall behind in terms of their wealth?
06:09It's not an easy question to answer because it's connected to everything.
06:13It's connected to the competitiveness.
06:16In the 2000s, we had, for instance, the Financial Services Action Plan,
06:19which gave a huge impetus because it helped financial markets forward.
06:24It helped cross-border banking.
06:26It helped payments.
06:28It helped consumer protection.
06:30And all of these things moved forward.
06:31So I would say that we need a similar plan.
06:35And through that, you need to really invest in our own continent,
06:41getting the productivity up.
06:42And there are many areas in which we can rekindle the economy.
06:47Then we need to work on our productivity.
06:50Because you also want people from the outside to invest in Europe.
06:54For that, we need to be attractive.
06:56We need to ask why so few outside investors are nevertheless investing
07:01through the taxonomy in sustainable products.
07:03Because the whole idea of being the most sustainable place to invest in the whole world is great.
07:09Many of the outside investors, when I travel outside Europe, tell me,
07:13we've tested your taxonomy because we like the idea.
07:17But in the end, a very limited number of products came out.
07:21And then you ask, OK, does that mean that you have unsustainable products?
07:25It's a logical question.
07:27And they say no.
07:28But if you look, for instance, at investing in the car industry,
07:31you want to electrify cars.
07:34Great idea.
07:35Nevertheless, you see that the taxonomy is so precise that
07:38it's not only about the electric car if something falls under the taxonomy.
07:44It's also that it needs to have the noise requirements of tires.
07:48But every car manufacturer puts different tires on their car.
07:53So it's almost impossible to meet it.
07:55So love the idea, but make it workable.
07:58And as well, do you think that there is a lack of financial literacy
08:03and understanding in Europe on the continent when it comes to knowing how to invest
08:08and sort of being more risk averse, for example?
08:13Interestingly, I've been working very closely on financial literacy
08:16in my previous job in the Netherlands and now again in the European Bank Federation,
08:21where we have the European Money Week and the European Money Quiz,
08:24which is played by 150,000 kids every year.
08:29So yes, but it's not the only part.
08:32It needs to be accessible, so transparent.
08:35There needs to be a high level of consumer protection.
08:39So people need to feel safe.
08:41And then you also need to know what to choose.
08:44And even if you have an advisor, you need more financial literacy
08:47because you need to be able to ask the right questions.
08:50So you're absolutely correct.
08:52Not only do we need more financial literacy for children,
08:56so they know what compound interest is and they know the basics,
09:00but also for young adults.
09:03And that is more, I would say, investment literacy,
09:07that they know what to ask, what fits them, what fits their lifestyle.
09:17And then the other thing important to capital markets as well,
09:20is the deeper pool of capital and green incentives for companies too.
09:25The EU Green Deal aims to build a Europe with clean energy
09:29and sustainable industries, as we know,
09:30with a target for climate neutrality by 2050.
09:33Now, many banks are still investing and funding fossil fuels.
09:36Of course, this is a big pressure point in the industry right now.
09:40Are you seeing any changes in attitude?
09:43Well, interestingly, there are tens of thousands of people in banks
09:49working on the green transition,
09:51on the sustainable transition of the whole economy,
09:55because banks have a very important role in financing this green transition.
10:01Not policing it, but financing it.
10:03So yes, there is investment in fossil fuel.
10:06And in my view, you need to help these energy companies
10:09to transition to a new future where they will be fossil free,
10:15where they will have alternative sources of energy.
10:17Because the easy way for banks would be,
10:20if we want to go from brown to green in one day,
10:22you just cut off all the investments that you do and you stop.
10:27But what have you done?
10:28Then you have undermined your role as a bank in society,
10:31because this will lead to mass unemployment,
10:33it will lead to social unrest.
10:35And in my view, it's the duty of banks to set clear goals
10:39of what we expect when we fund the future of these kind of companies,
10:43and that they have a clear plan to go to a fossil free future.
10:47But not cut off immediately.
10:48That would be completely irresponsible.
10:51And the US has the Inflation Reduction Act.
10:55Do you think that enough is being done to incentivise
10:58that transition among companies in Europe,
11:02the oil and gas companies, for example?
11:05I find it hard to judge very much on the Inflation Reduction Act.
11:08It's brilliant legislation,
11:11because it has nothing to do with either inflation nor reduction.
11:15But it has everything to do with investment in the own economy.
11:19It is a huge emphasis to invest in the economy of the United States.
11:24And I think that we could learn a little bit from that playbook.
11:33There's been a rise in popularity of neobanks among young people,
11:37like Monzo and Revolut, for example.
11:40How are these type of banking apps and things,
11:44how are they disrupting the traditional banking sector, if at all?
11:48Interestingly, I like them.
11:50Say, a few years ago, we had the fintech revolution,
11:53and the whole idea on the fintech revolution was,
11:56we will end banks tomorrow.
11:58But if you really looked at what fintech did,
12:02was actually pretty brilliant.
12:03They would take usually a part of the bank value chain,
12:07come up with a brilliant, much easier,
12:09much more cost effective solution, and market that.
12:14And so now you hear banks talk about the threat of big techs,
12:18but not about fintechs.
12:19The reason is, most of these fintechs have now been integrated in banks,
12:22or have sold licenses to their product, and that works.
12:26Now on the whole neobank, it's of course a brilliant idea
12:29to bring a bank that only lives online.
12:32And that works as long as you play by the rules.
12:36And then these neobanks have sometimes found that it's not so easy
12:39to have all the prudential requirements,
12:42to have all the supervisory requirements,
12:44to have all the know your clients,
12:46all the anti-money laundering, all the sanction legislation.
12:50And if they get through all that, great to welcome them.
12:53So you think there's something to be learned from these neobanks?
12:56Absolutely.
12:56The biggest thing we could learn from neobanks is,
12:59if you look at the way they're organizing themselves,
13:02and the speed to go from business decision to implementation,
13:05there's a lot to learn there.
13:06Let's hope we can apply the same in the capital markets union.
13:08Absolutely.
13:09Well, thank you very much for joining us on The Big Question.
13:12It's been a real pleasure to speak to you.
13:14And thank you very much for joining us as well on the show.
13:17Do keep across all our episodes on our Euronews YouTube channel
13:21and online under Euronews Business as well.
13:23You can catch all the Big Question episodes throughout the week.