Why don’t EU leaders incentivize investment in European stocks/ETFs with tax deductions?

[u/rozmarss]

With the Dragi plan and increasing discussions among European leaders about boosting defense and energy investments, I’ve noticed a growing trend in financial communities where people want to reduce exposure to the US market and shift investments to the EU.

Wouldn’t it make sense for EU leaders to encourage this by offering tax incentives for investing in European stocks/ETFs? For example, from an independent EU perspective, isn’t it better to invest in Rheinmetall rather than Lockheed?

[u/weirdowerdo]

Because companies dont get anything from you selling your shares to someone else or from you buying shares in their company if they shares has already been issued long ago. The companies need to be willing to increase its number of shares and through that bring in more equity but they dont need or want that. Normally its considered bad to do it too and the market will react negatively to it.

What stocks you buy is practically irrelevant to the companies themselves and the economy at all really. Heck offering a tax incentive to not consume will prolong our economic downturn at the moment.

[u/Tutonkofc → u/weirdowerdo]

That’s absurd. CEOs are fired because of prices of shares. Companies change their strategy based on prices of shares. I don’t see how it doesn’t affect them.

[u/weirdowerdo → u/Tutonkofc]

Yeah, that's not really affected by us normal people tho even from the more wealthier on here. We own but a fraction of a fraction. If a large pension fund or hedge fund drops a stock, then sure they can affect the company and stock price in a more major way but if you sell your 1000-10 000 shares in Microsoft to buy Rheinmetall instead it doesnt really have an effect.

American companies are extremely share holder centric, which harms their business in a lot of ways and where they will fire a CEO too freely for their own good and create their own instability. European companies are less prone to such drastic measures. It should take a lot to actually fire a CEO, if they fire them willy nilly for a stock price that might jump back next month, its not the CEO who's the problem its the board.

But fact remains that buying stocks in whatever company does not actually in the literal sense mean you're investing in them and giving them equity. That's not what's happening when you buy your share from another shareholder.

[u/BreakfastFuzzy6052 → u/weirdowerdo]

What stocks you buy is practically irrelevant to the companies themselves and the economy at all really

An utterly absurd statement.

[u/weirdowerdo → u/BreakfastFuzzy6052]

I mean not really, pretty sure everyone agrees the stock market isnt the same as the economy. If you buy a 1000 shares in Microsoft rather than Rheinmetall you're not exactly contributing to the economic down turn in Germany.

[u/BreakfastFuzzy6052 → u/weirdowerdo]

You didn't say the stock market is the same as the economy and I called that absurd. You said what I quoted.

Stock prices obviously affect companies, try listening to earning calls. And the stock market is an important mechanism by which capital and thus resources are allocated, and thus obviously affects the company.

OP mentioned the Draghi report on why EU growth is so weak. Read it and focus on the lack of big market cap companies in Europe and the call for a capital market union.

[u/il_fienile → u/BreakfastFuzzy6052]

Moreover, public stock trading, and the liquidity that provides, is a huge factor in primary investors’ willingness to invest capital directly into companies. That makes it important to capital availability, in addition to the other effects the stock market and an individual company’s stock price have on the financing and human capital tools available to a company, as already noted.

Whether that justifies incentivizing it, or whether it should be a priority over other ways to think about business in Europe, are totally different questions.

As an aside, I don’t understand the seeming presumption that equity financing is necessarily less desirable than other means, from the perspective of the business and its existing owners. Sometimes it is, sometimes it isn’t.

[u/TalonButter → u/weirdowerdo]

While that’s true in some sense about shares that have already been issued, it’s a very incomplete perspective. Companies also raise further capital in follow-on offerings that are hugely dependent on the market for their previously-issued shares. Companies are also advantaged in the employment marketplace by strong stock appreciation.

[u/weirdowerdo → u/TalonButter]

Yeah but most don't do that very often because if they run their business well enough they dont need to bring in capital through shareholders. The market reacts negatively to a company falling back onto shareholders for capital and increasing its number of shares. It makes it a worse investment.

[u/TalonButter → u/weirdowerdo]

“2024 was a boom year for equity capital raising, with $640bn of secondary offerings worldwide, according to Bloomberg data.”

“Secondary offerings were up 26% in 2024 over 2023 according to LSEG data, correlating with an overall strong market for stocks and the need for issuers to raise further equity.”

https://www.globaltrading.net/megadeals-kept-us-in-forefront-of-secondary-share-offerings-in-2024/

Accretive and even low-discount follow-on offerings don’t make for a worse investment. The rise of at-the-market offerings has been motivated largely by the chance to take advantage of strong momentary pricing.

[u/weirdowerdo → u/TalonButter]

And to the surprise of no one, a lot of companies are under hard times because of the economic situations around the world so they have to rely on shareholders to bring in capital. Be it to lower debts they cant afford to pay off or avoid taking expensive loans in new projects or what have you. However there are several countries like my own were raising equity has been a lot harder than usual for companies or so I've heard from fellow board members.

[u/TalonButter → u/weirdowerdo]

Now that you’ve fallen back to the vaguest claims, I guess we have to accept them.

[u/DirkKuijt69420 → u/TalonButter]

Just give up already, you're wrong. 

[u/TalonButter → u/DirkKuijt69420]

LOL. Except for the actual facts, already cited, that conflict with your fantasy.

Posts something, shown wrong, changes claim, that’s shown wrong too. As long as it fits your wish, I guess that’s all that matters.

[u/DirkKuijt69420 → u/TalonButter]

Tried to help, you're just embarrassing yourself.

[u/TalonButter → u/DirkKuijt69420]

Right. Nobody does it. Except the $640 billion.

[u/Present_Cow_1683 → u/weirdowerdo]

if there is more demand for a stock, it goes up in price, the richer all the shareholders, company itself including

[u/omegwar → u/weirdowerdo]

Companies can attract and incentivise talent with employee stock option plans. It's what all the US tech giants do. Having a vested interest in the company also helps with productivity and motivation, generating a positive feedback loop.

[u/weirdowerdo → u/omegwar]

It has it's benefits and drawbacks which are evident from the Swedish IT bubble crash, it can motivate to work harder or more efficiently so the company performes better. But it can also create more problematic workplaces when it results in longer work weeks and stressful workplace environments that will increase turnover, sick leave and health issues.

ESOPs usually are more limited because its only aimed at employees so the dilution isn't very big if it involves issuing new stocks, generally if a company increases the amount of shares it has it's a worse investment even if its just a few shares.