Europe channels an unusually large share of economic financing through banks, a structure that is increasingly linked to weaker investment in innovation and business expansion. The gap is most visible against the U.S., where companies and households make far greater use of capital markets and risk-bearing assets.
Highlights
- Deutsche Bundesbank data show the euro area's median market-based share of corporate financing is about 20% for both debt and equity, versus 40% and 60% in the U.S.
- Europe's reliance on bank lending for corporate finance became more pronounced since 1980, diverging sharply from the U.S. shift toward public capital markets.
- The venture capital gap accounts for roughly one-third to one-half of the Europe-U.S. difference in productive investment, according to the Draghi report.
Bank dependence and the capital markets gap
As reported by Financial Times, Europe relies far more heavily on bank finance than the U.S., with that dependence becoming more pronounced from around 1980 as financial liberalisation expanded financing across advanced economies.While Europe, Japan and the U.S. previously looked broadly similar in banking-sector size relative to GDP, the later expansion took a different form in America, where corporate funding did not become as concentrated in bank lending. Instead, U.S. companies make much wider use of public markets for both debt and equity financing.
A recent Deutsche Bundesbank report cited in the analysis shows that, in the euro area, the median market-based share of corporate financing is only about 20% for both debt and equity. By comparison, American corporations obtain about 40% of debt capital and 60% of equity capital from financial markets, although the market-based share varies significantly across European countries.
The financing divide appears even earlier in the business cycle. Early-stage investment is several times larger in the U.S. than in European economies as a share of output, and the article argues that the venture capital gap alone explains roughly one-third to one-half of the broader Europe-U.S. gap in productive investment highlighted in the Draghi report.
In our earlier coverage of Europe’s uneven recovery and credit conditions, we noted that growth momentum remains fragmented across the region, with some major economies holding up better than others. We also highlighted how persistent inflation risks, tight fiscal headroom, and competitiveness gaps can shape borrowing costs and investor sentiment, leaving weaker markets more exposed to stress.
Latest Europe News
-
Afghanistan
-
Albania
-
Algeria
-
Angola
-
Argentina
-
Armenia
-
Australia
-
Austria
-
Azerbaijan
-
Bahamas
-
Bahrain
-
Bangladesh
-
Belarus
-
Belgium
-
Bolivia
-
Botswana
-
Brazil
-
Brunei
-
Bulgaria
-
Cambodia
-
Cameroon
-
Canada
-
Chile
-
China
-
Colombia
-
Congo
-
Costa Rica
-
Cote d'Ivoire
-
Croatia
-
Cuba
-
Cyprus
-
Czechia
-
DR Congo
-
Denmark
-
Dominican Republic
-
Ecuador
-
Egypt
-
El Salvador
-
Estonia
-
Eswatini
-
Ethiopia
-
Finland
-
France
-
Georgia
-
Germany
-
Ghana
-
Greece
-
Haiti
-
Hong Kong
-
Hungary
-
India
-
Indonesia
-
Iran, Islamic republic
-
Iraq
-
Ireland
-
Israel
-
Italy
-
Jamaica
-
Japan
-
Jordan
-
Kazakhstan
-
Kenya
-
Korea
-
Kuwait
-
Kyrgyzstan
-
Laos
-
Latvia
-
Lebanon
-
Lesotho
-
Libya
-
Lithuania
-
Luxembourg
-
Madagascar
-
Malaysia
-
Malta
-
Mauritius
-
Mexico
-
Moldova
-
Mongolia
-
Montenegro
-
Morocco
-
Mozambique
-
Myanmar
-
Namibia
-
Nepal
-
Netherlands
-
New Zealand
-
Nigeria
-
North Macedonia
-
Norway
-
Oman
-
Pakistan
-
Palestine
-
Panama
-
Papua New Guinea
-
Paraguay
-
Peru
-
Philippines
-
Poland
-
Portugal
-
Puerto Rico
-
Qatar
-
Reunion
-
Romania
-
Rwanda
-
Saudi Arabia
-
Serbia
-
Singapore
-
Slovakia
-
Slovenia
-
Somalia
-
South Africa
-
Spain
-
Sri Lanka
-
Sweden
-
Switzerland
-
Syria
-
Taiwan
-
Tajikistan
-
Tanzania
-
Thailand
-
Trinidad and Tobago
-
Tunisia
-
Turkey
-
UAE
-
Uganda
-
Ukraine
-
United Kingdom
-
United States
-
Uruguay
-
Uzbekistan
-
Venezuela
-
Vietnam
-
Yemen
-
Zambia
-
Zimbabwe
- Forex
- Crypto
