Their model has positive features: (slide 10) equity capital amounts to 121% of GDP in the United States, compared with only 52% in the euro area, which means that in the United States innovation finds appropriate financing more easily. But it also has limitations that we should be mindful of: excessive cost of equity can have harmful effects. To meet the financial challenge, savings have a central role to play. I will focus on two avenues for steering them into productive investment. First, savings should be reoriented towards the long-term, more easily than towards direct risk-taking. French and, more generally, European savers are more risk-averse than American ones – and this is probably not going to change. The first savings motive in the euro area is indeed insurance against unexpected events (mentioned by more than 50% of households).viii But at the same time, savers are more and more concerned by the increase in life  5 expectancies and the need to prepare for retirement: old age provision ranks as the second most important savings motive (nearly 40%).ix Therefore it makes sense to offer savers new, complementary forms of savings products, that are less liquid during the first years, but that include some form of longterm capital guarantee. These new products would provide financial intermediaries – in particular life insurers – with liabilities long enough to take pooled risks – in the form of equity investments essentially – and savers with the higher returns offered by equity over the long run.
According to Banque de France calculations, the nominal CoE is still more than 9% for large listed companies in the euro area – compared with a risk-  4 free rate of around 0%. In other words, the risk premia have increased. The high CoE prompts companies to give priority to dividends and share buybacks over investment. In addition, it often goes hand in hand with a persistently high “hurdle rate”vii within companies, which results in an excessively severe selection of investment projects. The United States are a case in point (slide 9): since the early 2010s, share buybacks and dividends have increased sharply to more than 100% of reported earnings, while productive investment has significantly slowed down to an almost zero growth. 3. So what can be done to cure the investment dearth? First and foremost, we need a comprehensive therapy in Europe, both economic and financial. On the economic side, monetary policy is active and efficient; but it cannot remain the only game in town. Growth will be stronger in Europe if we combine structural reforms – including pro-business measures – where they are needed, such as in France, with greater fiscal support to help spur investment in the countries that have room to manoeuvre, such as Germany. But we also need to address the financial side of this investment dearth issue. The United States shows how crucial it can be in the long term.