LONDON — The U.K. government is going all-out to get Brits putting their money in stocks and shares. The timing could definitely be better. Lead policymakers and City of London analysts are increasingly warning of an artificial intelligence-fueled correction in equities just as the U.K.’s top finance minister prepares a major new policy to push Britain’s savers into the stock market. Chancellor Rachel Reeves has made upping retail participation in stocks and shares a high priority, launching a campaign earlier this year to unite financial firms in an advertising blitz extolling the benefits of investing. At next month’s budget, she’s expected to push changes to the tax system that would encourage investors to swap their steady, tax-free cash savings products for a stocks and shares ISA. With AI stocks soaring, it’s caused some raised eyebrows in the City. AI stocks in the U.S. account for roughly 44 percent of the S&P 500 market capitalization, and Nvidia just became the first company in history to become worth $5 trillion. The meteoric rise in has led some experts to warn there’s only one way out: The bubble will burst. “It would, unfortunately, be poetic timing if a major correction arrives just as the government is trying to get more people into investing,” said Chris Beauchamp, chief market analyst at IG. ATLANTIC INFLUENCE This week, City broker Panmure Liberum found that 38 percent of the U.S. stock market’s value is based in a “speculative component” that AI companies will continue to build out data centers and spend billions more on chips — by no means a sure bet. “While this capital spending could deliver substantial productivity gains that might eventually spread to the broader market, there is still no clear evidence that this is happening and is difficult to forecast the size of an eventual impact,” said Panmure analyst Susana Cruz in a research note. The “Magnificent Seven” group of tech giant composed around 20 percent of the S&P 500 at the end of 2022, but now make up more than a third of it, having tripled in size over just three years. The American index’s price-to-book ratio (meaning a company’s market cap compared to assets and liabilities) is at an all-time high, with 19 of the 20 valuation metrics tracked by Bank of America more expensive than the historical average. Despite the vast valuations, an infamous MIT study published earlier this year found that 95 percent of companies using generative AI were getting zero return. In early October, the Bank of England’s committee which monitors risks to financial stability warned of a “sudden correction” in markets, saying that “equity valuations appear stretched” as valuation metrics reached levels comparable to the peak of the dotcom bubble that unfolded in the early millennium, when the Nasdaq fell 77 percent from its peak, wiping trillions of the stock market. It took 15 years for the index to recover. The U.K. central bank’s warning came a month after global body, the Bank for International Settlements, issued a similar caution. Kristalina Georgieva, head of the International Monetary Fund, has also drawn comparisons with the dotcom bubble. Even Jamie Dimon, chief executive of U.S. banking giant JP Morgan, has said he’s seriously worried about a market correction. Over most periods investment beats cash, as long as individuals are willing to lock their money away for several years. Savers could have doubled their money over the last decade by putting their cash in the stock market rather than keeping it in a savings account, according to Schroders. Nvidia is up 13 percent this month alone — rather than an index fund which tracks hundreds of stocks, they stand to lose a lot of money if things go sour. | Jung Yeon-Je/Getty Images “No one can time the market, definitely not a bulky institution like the government,” Oliver Tipping, analyst at investment bank Peel Hunt, said. “Big picture, the government is right to try to stimulate more retail investment.” But if an individual decides to put their hard-earned savings into stocks they perceive as doing particularly well — Nvidia, for example, is up 13 percent this month alone — rather than an index fund which tracks hundreds of stocks, they stand to lose a lot of money if things go sour. “If you think about your average Joe, they’re not going to go into a safe index fund, they’ll put all of their money in Nvidia or Facebook and could get in at the wrong time,” one financial analyst, granted anonymity to speak freely, said.  Yet even an index fund, like a global equities tracker, is made up of close to 20 percent of the “Magnificent Seven” companies, due to the massive size of the American stock market compared to the rest of the world. While these funds have suffered significant drops in the past — U.S. President Donald Trump’s threat of tariffs in April caused a drop of 10 percent in a week — they have then recovered over a period of months or years. That’s good news for investors willing to wait for the market to correct any possible downturn — but if retail investors panic and withdraw their funds at the first sign of a loss, they could end up with less money than they put in, possibly wiping out emergency savings. “There is clearly a risk here that government is pushing people to invest when maybe they don’t have enough of a cash buffer in order to do that, that you’re going to be setting up problems for the long term, and it’ll be interesting to see who’s on the hook for paying that compensation,” said Debbie Enver, head of external affairs at the Building Societies Association. ONCE BITTEN, TWICE SHY City analysts also express concern that investors entering the stock market for the first time could be forever turned off from shifting their cash over to equities if an immediate correction is nigh. Only 8 percent of wealth held by U.K. adults is in stocks and funds, four times lower than in the U.S., according to data from asset manager Aberdeen. “There is no doubt that the government would find it much harder to drive retail investment in a period of financial turbulence,” added Chris Rudden, head of investment consultants at Moneyfarm. “Appetite to invest is linked to strong recent market performance. If there was to be a bubble that bursts in the coming few months, then it could make their job impossible.” IG’s Beauchamp argued that the government would need to pursue a broader education plan “to help people through the inevitable pullback” and prevent them from avoiding the stock market permanently. “How you do that without scaring people witless is a Herculean task,” he added. Laith Khalaf, head of investment analysis at AJ Bell, suggested investment platforms could encourage regular incremental savings in the stock market, known as dollar cost averaging, rather than throwing one lump sum in, which he said “mitigates the risk of a big market downdraft.” One solution that appears to be under consideration by Reeves as part of the autumn budget is to introduce a minimum U.K. stock shareholding in ISAs — which she could argue would protect British savers from a U.S. downturn and pump more money into local companies. This too is not without risk. The FTSE 100 derives nearly 30 percent of its revenue from the U.S., according to the London Stock Exchange, and U.K. markets are generally incredibly sensitive to macroeconomic shifts across the Atlantic. The FTSE 100 derives nearly 30 percent of its revenue from the U.S., according to the London Stock Exchange. | Jeff Moore/Getty Images Meanwhile, if an AI-induced stock bubble isn’t enough cause for concern, worries of trouble in the private credit sector exploded this month after the collapse of sub-prime auto lender Tricolor and car parts supplier First Brands left some U.S. banks with significant losses, causing a spillover onto public markets. BoE governor Bailey recently drew similarities between risks in the asset class and the 2008 global financial crisis, saying it was an “open question” if the event was “a canary in the coal mine” for a market meltdown. If one domino falls, they all could — and that would leave Britain’s chancellor in a real bind.

LONDON — U.K. Chancellor Rachel Reeves is considering launching a refreshed version of a Thatcher-era advertisement campaign to save the ailing London Stock Exchange. Multiple senior City figures told POLITICO they have been contacted by the London Stock Exchange Group — the company that runs the London stock market — to sign up for a “hearts and minds” campaign to convince the public to move their cash savings into British stocks and shares.  It comes as the stock exchange continues to struggle with an exodus of companies leaving for greener pastures in the U.S. due to depressed valuations and a lack of capital. According to the IG Group, 88 firms left the LSE last year compared to just 18 that joined. The chancellor had weighed up cutting the tax-free Cash ISA allowance to get more savers to invest, with the Treasury saying in the March spring statement it wants to “get the balance right between cash and equities to earn better returns for savers, [and] boost the culture of retail investment.” But Reeves has since backed down from that plan, according to reports.  The chancellor and the LSEG have been inspired by the 1986 “Tell Sid” campaign that was launched after the privatization of British Gas when Margaret Thatcher was prime minister, which helped boost the number of Brits that held shares from just five percent to 19 percent across the 80s and 90s. One director at a major investment platform said the idea had been “doing the run around for quite a while” and there was now a “certain amount of industry coordination that’s going on behind the scenes” to bring the idea to life. Like others quoted in this report, they were granted anonymity to speak candidly about the plans. ‘MULTI-YEAR CAMPAIGN’ The director said that the campaign could run around the end of the tax year next April, when most retail investors make decisions about where to allocate their savings, and it is likely to be about investing as a whole rather than urging savers to take a stake in one private company like the original campaign.  However, the timings of an announcement are unclear. Another policy director at a trading platform said they were contacted by an LSEG executive who told them it could be mentioned at Mansion House next week, but they admitted it was still “in the early stages” of planning.  “They’re [the LSEG] talking a multi-year always-on campaign and are trying to get brokers to sign up,” they said.   “There have been some general conversations, but there’s been no assignment of roles as yet,” said a separate director at a financial services trade body involved in the plan.  But in an interview with POLITICO last week, the City of London Corporation’s policy chair, Chris Hayward, said the LSEG is planning to run “a campaign on retail investment very, very shortly.” Some high-street banks have been calling for a retail investment advertisement blitz in recent months, and in May, the Building Societies Association urged the chancellor to replicate the 1960s New York Stock Exchange campaign.  When asked about the plan, an LSEG spokesperson declined to comment, noting remarks by its CEO last month that “now is the time to have a long-term public campaign that would demystify investing.” A Treasury spokesperson declined to comment. When Reeves does announce a campaign, it will fulfill a Labour pledge from its financial services manifesto that was published in the run-up to the election.  It would also be a copy and paste of a former government policy. In 2023, then-Chancellor Jeremy Hunt floated creating a new “Tell Sid” campaign centered around the sell-off of the government’s NatWest shares, but it was eventually scrapped.

BRUSSELS — The EU has long promised to tear down the barriers splintering its capital markets — but behind every delay lies a web of national interests and industry players profiting from the patchwork. But now, Brussels’ top financial official is signaling that the era of diplomatic restraint regarding such forces may be coming to an end. “We have been complacent, we have been settling for less,” the EU’s financial services commissioner, Maria Luís Albuquerque, told a room full of lobbyists and top officials in Warsaw last week, according to the text of a speech released by her office. The stakes have arguably never been higher. There’s broad consensus among policymakers that mobilizing private investment will be key to shaking off economic stagnation in Europe and delivering on the Commission’s defense agenda. Yet despite more than a decade of lofty ambitions and repeated political pledges, efforts to advance the capital markets union have consistently stalled. Albuquerque isn’t just reciting the party line on the bloc’s broken markets. Since taking office in December, the former Portuguese finance minister — and ex-Morgan Stanley insider — has publicly called out the vested interests holding EU markets back.  “We have endured — and even reinforced — persisting barriers that hurt us all, even if some have an immediate gain. Not anymore,” Albuquerque said, at the Eurofi conference. The object of her frustration are market players who are happy to preserve the status quo to fill their own coffers. In Warsaw, Albuquerque called out players in the bloc’s financial plumbing, including trading infrastructure, post-trading and asset management. As well as firms, she’s targeting protectionist behavior by national governments who keep markets fragmented to retain decision-making power, so that their own economies can benefit more in the short term.  BROKEN PARTS European equity markets, stock exchanges and financial plumbing known as post-trade infrastructure are a “complex patchwork,” which creates “a huge obstacle to building bigger and better capital markets,” the think tank New Financial wrote in a 2021 report on markets fragmentation. For as long as so many players remain in the market, the report said the EU “can tinker at the edges with the detail of regulation,” but “not much will change.” European equity markets, stock exchanges and financial plumbing are a “complex patchwork,” which creates “a huge obstacle to building bigger and better capital markets,” according to a New Financial report. | Kirill Kudryavstev/AFP via Getty Images To compare, U.S. equity markets are more than double the size of the EU’s, while having a small fraction of the exchanges for listings and trading that Europe has. The report found, for example, that the EU has 20 times as many post-trade venues as the U.S. American markets also benefit from just one non-profit company, the DTCC, being responsible for all the clearing and settlement of equity trades. In the EU, on the other hand, there are 295 trading venues, 14 clearinghouses and 32 central securities depositories. Most equity trading takes place in domestic exchanges. And while there are bigger exchange groups in the EU now, like Euronext and Nasdaq, the national exchanges within those groups are still separate, meaning the market is still fragmented.  IMF research often cited by the Commission calculates the damage of single market barriers to the EU as equivalent to a tariff of over 100 percent. In short, the barriers are real, self-imposed, and sacrifice long-term overall gains for the EU’s economy in favor of short-term gains for smaller players within the single market.  A LOBBYING STORY “Behind every barrier and behind every source of fragmentation, there is someone who is making money from the fragmentation,” the Commission’s top financial services official, John Berrigan, said at a conference in Brussels in March. He said the reasons for defending the entrenched interests are linked to the EU’s overall integration. The benefits of removing blockages are “diffuse” across the EU, making them harder to see and therefore fight for, whereas the loss of revenue to players benefiting from a source of fragmentation can be “quite concentrated.” “So those people speak out and they speak loud,” Berrigan said. One of the most heavily lobbied proposals in recent history sought to break down market barriers. The Commission’s Retail Investment Strategy, put forward in 2023, aimed for two major strides to boost the number of citizens investing — introducing accessible value-for-money benchmarks so investors across the EU could see how much bang they were getting for their buck, and banning kickbacks paid by asset managers to investment advisors in return for directing investors towards their products.  The kickbacks “generate conflicts of interest and can lead to the mis-selling of financial products, suboptimal asset allocation, and poorly performing investment products,” according to the NGO Better Finance. The trouble is, the finance industry makes money from the practice. Governments, heavily lobbied by asset managers, insurers, and others who benefit from the kickbacks, pressured the Commission into removing the ban before the text was even officially proposed back in 2023. A final agreement on the proposal still hasn’t happened.  Another proposal, for an EU ticker tape which would publish data on the prices and volume of traded securities in the EU, improving overall price transparency and competition, was hollowed out after — again — pressure from governments lobbied by their stock exchanges, whose business model of distributing that data for a premium price would be threatened by the tape. Under the political deal on that legislation, a weaker version of the ticker tape with less valuable information will still be set up, but stock exchanges are already forming consortia to bid to run the tape, meaning competition may be diluted. IMF research often cited by the Commission calculates the damage of single market barriers to the EU as equivalent to a tariff of over 100 percent. | Florian Wiegand/Getty Images Those are just two examples of many, but the pattern is clear — new EU initiatives which would deepen capital markets are hollowed out or ditched after governments, in thrall to their national finance industry champions, say no.  THE RULES Then there’s the stubborn issue of the rules and who enforces them. Although most agree that having a single rulebook and a single supervisor for EU capital markets actors would make the market more integrated, governments won’t give up their ownership of the rules and their supervision, with high-level summits on the issue ending in stalemate.  They also engage in “gold-plating” — when countries roll out EU rules differently at the national level. This is often to protect national investors or domestic economic interests, a fact that creates barriers for foreign entrants, damaging competition, according to a 2024 report by the Polish capital markets lobby group CFA Poland. The report singles out Germany, Spain, and Italy as high gold-plating countries, while it said investment hotspot Luxembourg gold-plates the least. The Commission wants to change this, planning to convert directives — EU laws which can be interpreted nationally in different ways — to regulations. The latter, unlike the former, have to be rolled out the same way across the EU, something that should help to centralize more supervision at the EU level. But governments are already pouring cold water on that idea. Polish finance minister Andrzej Domański, who is currently chairing EU-level talks as the head of the six-monthly rotating presidency, said there is “absolutely no room” for centralizing supervision, and that EU countries would only “accept” better “coordination” between existing national supervisors. Ultimately, the Commission can talk tough on breaking down vested interests that are keeping the EU’s capital market undersized and fragmented — but national governments will still need to be the ones who move to break down any barriers.

A new year, a new European Commission — but the same old fights. From reviving European markets to keep pace with China and the U.S. to advancing digital and green initiatives, Brussels faces a pivotal year of economic and financial challenges. Here’s POLITICO’s rundown of the key finance policy battles shaping 2025: THE ‘SAVINGS AND INVESTMENTS UNION’ The EU’s long-stalled capital markets union has been rebranded as the Savings and Investments Union — but the name change hasn’t made it any less contentious. Two major legislative efforts are already in play: a revamp of the EU’s retail investment rules (RIS), and its attempt to patch up holes in bank crisis management rules (CMDI). Both have been watered down in negotiations, frustrating the Commission. With RIS, Brussels faces a tough choice: scrap and rewrite the proposal or settle for a diluted version likely to require further revision soon. Meanwhile, efforts to revive the market for resold debt, known as securitization, are stirring memories of the 2008 financial crisis. Southern EU nations remain wary, while industries like insurance — whose massive pools of investment the Commission wants to attract to the securitization market — are largely indifferent. The Commission is also weighing ideas like consolidating financial markets and creating simple EU investment products, though many member states remain resistant. DEFENSE SPENDING For years, Western European countries largely ignored calls from anti-Russia hawks to boost their military expenditure. But Russia’s invasion of Ukraine in 2022 and the prospect of a second Donald Trump presidency have reignited EU defense debates. While most countries agree on the need for stronger defense capabilities, the challenge lies in funding. Debt-laden nations like Italy and France that fall short of NATO’s defense spending target of 2 percent of gross domestic product have little room to increase their military budgets without making cuts to other sensitive areas. They prefer issuing common EU debt to finance defense — an idea firmly opposed by fiscally conservative states like Germany and the Netherlands. The European Commission must navigate a path that satisfies hawks, southern nations far from Ukraine, and fiscal hardliners. Commission President Ursula von der Leyen has taken prospective amendments to another level by announcing a bumper “omnibus” law that is expected to merge a number of green rules together. | Buda Mendes/Getty Images THE EU’S LONG-TERM BUDGET  Negotiations over the EU’s next seven-year budget will start in earnest this summer when the European Commission will formally put forward its proposal for 2028-2035.  While the amounts under actual negotiation are negligible, the final outcome is seen as a bellwether of a country’s power in Brussels.  As a result, EU power brokers are already dusting off their abacuses and assembling coalitions. Hawkish Eastern European and Nordic countries including Poland and Sweden are keen to boost EU spending on defense, while Southern ones such as Italy and Greece would prefer more cash to stem migrant arrivals from Africa.  In 2025, EU countries will set their red lines for the negotiations. But if the past is anything to go by, leaders will squabble over the details till the eleventh hour. THE GREEN RULES BONFIRE Green finance rules were already set to dominate the 2025 agenda, with tweaks to the Sustainable Finance Disclosure Regulation widely expected to iron out kinks in a text that has hugely impacted industry. But now Commission President Ursula von der Leyen has taken prospective amendments to another level by announcing a bumper “omnibus” law that is expected to merge a number of green rules together. The package is already sparking political fights over which laws to include, with the finance sector bracing for an intense legislative battle. THE ‘OPEN FINANCE’ REVOLUTION  Lawmakers are debating key financial reforms, including a financial access data bill and payment sector rules, pitting Big Tech against traditional finance. The data bill would force insurers and other financial firms to share customer data with third parties, in a bid to foster innovation. While consumer advocates are wary of Big Tech’s growing role, policymakers have added oversight provisions for major digital platforms designated as “gatekeepers.” Green finance rules were already set to dominate the 2025 agenda. | Christopher Furlong/Getty Images However, there is no formal prohibition on their entering the financial data market directly to offer new products. PAYMENT PROVIDERS VS. DIGITAL PLATFORMS On payments, the biggest fight centers on fraud liability. Payment providers want digital platforms held partly responsible for fraud on their systems given that online communication channels have become a key tool for fraudsters, a move the online platforms strongly oppose. So far, the EU executive has stayed neutral, arguing payment reform may not be the best way to address the issue. As a result, governments and lawmakers will have the last word.