The European dwarf

We can lament the dominance of U.S. financial markets, but the reality is that Europe has never succeeded in building a truly significant equity or bond market. While part of this can be explained by "U.S. exceptionalism," much of the challenge lies within Europe itself — the absence of a genuine capital markets union, fragmented national regulations, high bureaucratic hurdles for public offerings, persistently low government debt in Germany, and intense competition among member states.

The dollar remains the world's preeminent safe haven currency, largely because the U.S. is still the only economy with the scale and depth to recycle global savings. By contrast, Eurozone capital markets remain comparatively small and fragmented.

Institutional investors are increasingly seeking diversification across geographies, asset classes, and political risks. However, it is clear to us that the U.S. dollar will not lose its safe-haven status overnight.

Unless Europe succeeds in building deeper, more integrated capital markets to finance its companies and governments effectively, it will continue to lose ground in the global marketplace and see its competitiveness steadily erode.