Draghi shakes Ecofin: “Huge investments must be financed”
After the French Economy Minister Bruno Le Maire, yesterday it was the turn of former ECB president Mario Draghi to force EU finance ministers into a reality check. While the Transalpine enarch yesterday lashed out at the Eurogroup on the need to proceed towards the Capital Markets Union on a voluntary basis, to escape a future of decline through inertia, at the stadium in Ghent, Flanders, it was the former central banker to reel off, in front of the ministers, the figures that attest to the harsh reality. That is, in simple terms, that the EU, if it does not wake up, risks never making up for the enormous delays accumulated towards the USA from the financial crisis onwards, becoming increasingly an object, and not a subject, on a geopolitical level.
Draghi, who was entrusted by the President of the European Commission Ursula von der Leyen with the task of drawing up a report on the competitiveness of the EU, repeated to the ministers, albeit in the form of questions and suggestions, the concepts that he had already expressed to his fellow heads of state and government when he was at Palazzo Chigi, in particular to the most refractory. In essence, Draghi recalled today, the EU will have to make “enormous investments” in the coming years, in a “relatively short” period of time, to address the green transition, the digital transition and defense spending.
Valdis Dombrovskis himself, who is a hawk on public finances but comes from Latvia, which has Russia on its borders, he underlined that the EU must do more on defence, given that “some countries” do not even respect the minimum NATO target, which is to have military spending equal to at least 2% of GDP. Among other things, today marks the second ‘anniversary’ of Russia’s invasion of Ukraine. And the situation at the front, said Finnish Minister Riikka Purra, a True Finn (Perussuomalaiset, Ecr group), is “rather desperate”: Kiev needs “more weapons and more ammunition”, she underlined. Without counting defense spending, Draghi estimated that, for the green and digital transition alone, the Union will need something like “500 billion euros” of investments per year. Econometric estimates vary, but one thing is clear: lots and lots of money will be needed.
In short, “enormous” investments are needed, which obviously must be financed, otherwise they will remain on paper. Thus Draghi discussed with the ministers the possible ways to recover the now chronic investment gap of Europe, which is fond of austerity towards the USA. Illusion that the public money of individual states is enough, explained the former president of the ECB, is in any case in vain, because “they will never be enough”. Draghi gave clear indications, albeit in the form of questions or suggestions: on public funding at a national level, he underlined that it is necessary to evaluate how much “fiscal space” the new stability pact can guarantee to individual countries.
When he was prime minister, the former governor had repeatedly remarked that, without serious regulatory incentives for investments in green and digital, Member States with the weakest budgets simply would not have done them. Which would only increase, once again, the divergences within the Union, which Next Generation Eu has contributed to reducing. Even if Draghi formulated some questions, what you think is quite clear from how you articulated them.
The investment gap that separates the EU economy from the US one, which is increasingly widening and has now risen to “half a trillion a year”, is made up, he remarked, of only “one third” of public investments. Two thirds are attributable to private investment in the USA. And here comes into play the need to mobilize the considerable savings of Europeans to finance the real economy, i.e. the companies of the Old Continent. And in order to channel it towards more productive uses, i.e. in the securities issued by European companies, the Capital Markets Union is needed, as Draghi also mentioned.
Otherwise we will continue as we do now, with European savers going to invest on Wall Street rather than on the European stock exchanges, small and competing with each other: net capital outflows towards the other side of the Atlantic amount to 250 billion euros a year, Lagarde recalled. An unsustainable situation in the long run if the EU wants to avoid retreating further, as highlighted by both Le Maire and, between the lines but not so much, the current president of the ECB (also French).
Third horn of the problem, the opportunity to finance at EU level the investments necessary for the Union’s common priorities. In this regard, Draghi suggested the establishment of a “dedicated fund”, a “loan” or a “public-private partnership”, with a “significant” role of the EIB, now led by the Spanish Nadia Calvino. It is not a path shared by all capitals: von der Leyen had to quickly bury the idea of an EU sovereign fund due to the opposition of some chancelleries.
The discussion between Draghi and the ministers, reportedly confirmed the divergence of opinion between member states on whether to proceed with joint funding: the Nordics and Germany accepted Next Generation Eu as an exceptional, one-off event, just for the pandemic. The richer states resist the prospect of transforming that method, the joint issue of bonds, into something structural, as Economy Commissioner Paolo Gentiloni always repeats that he wants to do.
IThe report that Mario Draghi will draw up on behalf of von der Leyen, added van Peteghem, will help, together with the one that Enrico Letta is preparing in parallel, another former Italian prime minister, on behalf of the President of the European Council Charles Michel, to prepare the program of the next Commission. Draghi is expected to present the fruit of his labor by the end of June, after the European elections. For Dombrovskis, the risk of it remaining a dead letter, due to the inertia of the 27, is limited, because today there is a “greater awareness” among the capitals of the dangers and risks that Europe runs. Meanwhile, Draghi continues his consultations: next Tuesday he will be in Strasbourg to speak with the presidents of the European Parliament commissions.