Rebalancing at Home to Adjust Abroad: Europe's Savings and Investment Union in a New Global Order

Europe's steps towards the Savings and Investment Union (SIU) take place against the backdrop of a profound shift in the United States' approach to global economic relations. Rising US intolerance towards persistent global imbalances – centred on its large external deficit – is reshaping the geopolitical and financial landscape. Reviewing competing explanations for the buildup of these imbalances over recent decades, including the global saving glut, safe-asset scarcity, precautionary saving, and rising long-run US risk, we derive lessons for the SIU. A scenario analysis of potential disorderly financial adjustments highlights the vulnerabilities faced by euro area savers given their large cross-border assets and exchange rate exposure. These findings underscore the need to deepen and integrate capital markets, expand high- quality euro-denominated assets, and improve the risk-adjusted returns of European investments. In this respect, a successful SIU can strengthen Europe's resilience while contributing to more balanced and orderly global adjustments.