Cutting oil investments too fast will lead to social unrest, bank federation boss warns
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.
Transcript
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.