In the political, economic and financial spheres, the global balance of power is shifting. Even before the Iran War, Europe had recognised the need to gain more sovereignty over defence and the economy, above all in the fields of energy and digitalisation.

However, one issue is not being discussed: the major dependencies that exist in the financial world. When we Europeans make payments, whether by credit card, smartphone or via an online payment service, we are almost always relying on US infrastructure. It is important for European sovereignty that we offer and use attractive European alternatives in this arena.

The same goes for IPOs. Successful German companies like BioNTech are going public in New York and not in Frankfurt am Main. This is because the US capital market is by far the biggest and most liquid market in the world.

In the US, investors can tap into an entire ecosystem, including analysts from German financial institutions. This ecosystem is vital for a sound investment, but it can also be built in major European cities, thereby making Europe an attractive location for issuance and investment.

It would make Europe stronger if more European firms used the European capital market, not least to obtain funding. Yet German SMEs, in particular, shy away from the capital market, chiefly because of the costs and transparency requirements involved in issuing stock on an exchange.

US financial institutions wield enormous market power

On the one hand, it is up to the government to make using the capital market more attractive. The reform of the EU securitisation market shows that there is a willingness to do so. Securitisation allows loans to be converted into tradable securities.

On the other hand, I am also appealing to European financial enterprises and businesses, which could play a key role in strengthening Europe by placing more shares and corporate bonds in European markets. Then, European citizens, pension funds and other investors would not have to opt for US investments, but could invest more in European firms.

US financial service providers made huge gains in market power after the financial crisis of 2008 by not only digitalising their processes, but also bringing their products into the digital world, far ahead of Europeans. This gap could widen.

The amounts being invested in digitalisation and artificial intelligence in the United States and Asia outstrip European investment many times over.

International investors are turning more to Europe

That being said, Europe has a huge opportunity to step into a greater role again in the financial universe of the 2030s. Interest in Europe, especially Germany, has risen sharply among international investors. These international investors are diversifying their portfolios given the geopolitical situation, but also because they have confidence in Europe.

In Germany’s case, this confidence is primarily based on its reliable legal system, its democracy, cutting-edge research in many fields, and the sound economic framework.

Future market power in the financial sector will crucially hinge on where technological advancements are developed and applied. The digital financial world of the 2030s offers many opportunities, especially for Germany as Europe’s forerunner in patent applications.

Developments that have garnered much attention include instant credit transfers, digital government-issued currencies, and private payment instruments based on blockchain technology such as stablecoins. In the United States, especially, stablecoins pegged to the US dollar have become more prevalent.

A US stablecoin adopted by one of the Magnificent Seven, which are the seven major US tech firms, would have the potential to reach billions of people around the world in a short space of time and thereby create further dependencies.

Europe can gain sovereignty over the financial sector as well

Instead of leaving the field solely to stablecoins, banks can apply blockchain technology to their customers’ accounts, turning them into tokenised balances. This would give enterprises end-to-end, digitally represented value chains in which goods, data and payment flows seamlessly intertwine. Long-standing business relationships between banks and enterprises will be preserved.

Few are aware of the development of other tokenised financial instruments, whereby any number of different assets can also be represented on the blockchain. Retail customers would enjoy numerous benefits from, say, digital representations of securities, real estate, artworks or film rights. These digital assets can be bought and resold quickly and cheaply even broken down into smaller fractions. These new tokenised markets thus offer many as yet unimagined business opportunities.

Technological progress and the knowledge that we are betting on more Europe present an opportunity for Europe to once again play a more sovereign role in the world of finance as well.