Cross Border Capital Flows: Swings and Roundabouts
The European Commission’s Savings and Investments Union (SIU) is an ambitious initiative with the potential to transform Europe’s financial landscape by building a deep and resilient culture of investing. By placing households at its core, the SIU rightly recognises that meaningful capital market growth needs stronger retail investor participation. To achieve this, the SIU must dismantle national barriers to investing and streamline cross-border fund structures. More than that, it must empower European households to move beyond low-yield bank deposits to funds investing. That change would afford European households a better opportunity to meet their long-term financial needs and goals.
As the SIU policy debate intensifies, some argue that the best way to strengthen European capital markets is to have European savings directed exclusively into European companies, limiting access to global markets and discouraging investment in non-European firms. This view reflects a perception that European capital is fleeing abroad, particularly to the United States, to the detriment of Europe’s economic position.
But this narrative does not capture the full picture and overlooks what is in the best interest of European investors. Capital markets are not zero-sum. Investment flows between Europe and the United States are dynamic and reciprocal, with European investors benefiting from exposure to global innovation and growth and US investors simultaneously investing large amounts of capital in European firms. The health of European capital markets will not be achieved by narrowing investor choice or mandating geographic limits but by making Europe a more attractive destination for investment—both for its citizens and for the rest of the world.
Imposing legal and political restrictions on investor choice would risk fragmenting the very union the SIU seeks to build. It could undermine trust, distort market signals, and weaken Europe’s competitive position at the precise moment when Europe needs to act boldly to inspire long-term investment and household participation in capital markets.
The early success of the SIU will depend on empowering, not constraining, investors. That means giving Europeans the tools, confidence, and flexibility to build financial security across a well-regulated spectrum of domestic and global opportunities.
Foreign Investment Is a Two-Way Street
Claims that European capital is “lost” to the US ignore the reality of deeply interconnected transatlantic markets. But data show a robust and balanced relationship between Europe and the United States, with capital moving in both directions. Since 2014, there have been several years in which US investment in Europe (through equities and investment funds) has exceeded European investment in the United States, reflecting mutual confidence in each other’s markets.
For example, in 2021, US investment in Europe totalled $213 billion, nearly double the $126 billion flow from Europe into the United States (Figure 1). In 2024, strong US equity market performance led to the reverse, with the United States drawing increased European interest. These fluctuations reflect rational capital allocation decisions in response to current relative performance and expectations of future performance. They are not evidence of structural weaknesses or disloyalty. Investors, by nature, seek returns commensurate with their risk. Policymakers should expect, and support, this rational behaviour.
Figure 1
Investment Flows Between US and Europe Move in Both Directions
European investments into the US occasionally outweigh investments from the US
1US investment in Europe is the equity and investment fund shares portion of “net US acquisition of financial assets excluding financial derivatives.”
2European investment in the US is the equity and investment fund shares portion of “net US incurrence of liabilities excluding financial derivatives.”
3Data for 2025 are through Q1.
Note: Equity and investment fund shares include directly held equities and investment funds (e.g., mutual funds, money market funds, UCITS, AIFs).
Source: ICI calculations of data from the US Bureau of Economic Analysis (BEA), “Table 1.3. US International Transactions, Expanded Detail by Area and Country."
What Goes Around, Comes Around
Performance, not geography, drives capital allocation. Recent investment behaviour underscores this point. European investors are already reallocating capital based on performance. Between January and July 2025, UCITS investors directed €125 billion in net flows toward international and Europe-focused equity funds and withdrew €13 billion from US-focused equity funds (Figure 2). This is exactly the kind of behaviour the SIU should support.
The recent European outperformance shows that investors recognise the opportunities available in Europe and are rationally allocating their capital there. Instead of restricting access to global markets, policymakers should focus on ensuring that Europe’s capital markets are competitive, scalable, and attractive so that Europeans want to invest their money at home (and international investors want to increase their investments in Europe).
The SIU should facilitate this natural reallocation by removing regulatory frictions, reducing fragmentation, and enabling asset managers to operate seamlessly across borders.
Figure 2
Total Returns on European Stocks Outperformed US Stocks in 2025...
Relative performance (percent) of European versus US stocks1
...And Net Flows of EU UCITS Have Since Shifted to Non-US International Equity Funds in Recent Months2
Billions of euros, monthly
1Relative performance is calculated as the difference between the month-end total returns of the EURO STOXX 50 index and the S&P 500 index. Positive values indicate outperformance of European stocks, while negative values indicate outperformance of US stocks.
2Data include UCITS and UCITS ETFs. Data exclude sector funds and property funds. Data for non-US international equity UCITS include global equity funds, which may invest some percentage of their portfolios in US equities.
Source: ICI calculations of Morningstar Direct and Refinitiv data
Conclusion
The success of the SIU depends not on putting up barriers and retreating inward, but on embracing the openness, confidence, and investor empowerment that defines mature capital markets. European savers are already engaging with global markets, allocating capital with discipline and foresight. This is not a weakness to correct, but rather a strength to harness. Most importantly, the ability of European households to maximise their investment returns by being able to freely allocate their money in markets at home and abroad is most beneficial to the long-term well-being of European citizens.
By aligning the SIU with these realities—championing investor choice, promoting cross-border efficiency, and enabling competitive performance—policymakers can build a stronger foundation for household financial security and robust capital markets.
Now is the time to foster an investment culture that is confident, ambitious, and globally connected. The SIU is Europe’s opportunity to turn that vision into a reality.