France is banking on a new push to integrate the European Union’s fragmented capital markets to give them the scale needed to wean its flourishing startup sector off of dominant US venture capital, ministers, CEOs and investors said.

A hodgepodge of local regulations and oversight has kept Europe’s financial markets largely shaped by national borders, preventing the emergence of deep capital markets to rival the United States.

For startups in France and elsewhere in European Union that means they almost inevitably turn to US venture capital – private equity funding of early stage promising companies – to fund growth as there simply is not enough big investors at home.

While the US funding is welcome, the result is a missed opportunity for Europe, said Matthieu Rouif, CEO of French startup Photoroom, which recently raised $43 million from UK fund Balderton and Silicon Valley’s Y Combinator.

“A huge amount of wealth has been created over the past 20 years, created off the back of tech innovation, and the fact Europeans don’t have access to that is a big issue,” he said at the Viva Technology fair in Paris last week.

The 10 biggest venture capital firms are all from the United States and dwarf their European rivals in the amounts of money they can raise for investment, according to the French central bank.

A report published by venture capital firm Atomico in 2023 estimated European startups would raise $45 billion that year, compared to the $120 billion raised in the US

The French government is therefore pushing for the next European Commission to make a priority of reviving long-stalled plans for EU capitals market union harmonising financial regulations and supervision across the 27-nation bloc.

While a consensus is emerging among EU governments to move ahead at least in principle, in practice some remain reluctant to lose regulatory control of their financial markets.

French Finance Minister Bruno Le Maire warned that Europe could not afford to keep dithering, citing the example of Mistral AI, France’s answer to OpenAi.

“Mistral needs to raise money in the next six months, it’s going to be a lot of money. So either we move ahead with capital markets union or else they will go somewhere else,” Le Maire said at the Paris tech fair.

Another way to scale up EU venture capital would be to get public sector investors, such as the European Investment Bank, more involved in financing startups by accepting more risk than private investors, Bank of France Governor Francois Villeroy de Galhau said.

Meanwhile, for European venture capital firms, a single unified market would make it more attractive to float the companies they fund in Europe rather than the United States.

“As a French citizen, it’s a shame to see that the value creation flywheel isn’t spinning as fast in Europe as it is in the US,” said Antoine Moyroud at Silicon Valley venture capital fund Lightspeed, which is one of Mistral’s investors.

European startups that end up floating on markets at home could also expect a more stable investor base than in the United States, where investors are more likely to sell down holdings in foreign firms during a downturn, said Louis Dussart with venture capital group RTP Global.

“It would truly be a pivotal moment if we could establish Europe as an attractive place to exit and bring liquidity back into the ecosystem,” Dussart said.