Europe's Investment Needs

By Jan Strupczewski

BRUSSELS (Reuters) – Europe's investment in transitioning to green and digital economies, defense, and research should come from private sources, with public funds serving to leverage these investments, say EU finance ministers.

A draft statement, viewed by Reuters, highlights the necessity for the EU to effectively compete with the U.S. and China in technology and combat climate change by reducing CO2 emissions. Last month, former European Central Bank President Mario Draghi reported that the EU requires investments of up to 800 billion euros ($868.48 billion) annually, or as much as 5% of GDP, to remain economically competitive.

EU finance ministers emphasize that they cannot provide this investment amount and stress the need to develop capital markets to facilitate private investments. The draft notes: "At a time when public finances have been affected by multiple crises and sustained fiscal consolidation is needed, the necessary investment should come primarily from private sources. Public funds are scarce and best used as a catalyst for leveraging private capital where there are positive spillovers."

Leveraging refers to using a relatively small amount of EU funding to cover high-risk aspects of investment projects. This encourages private investors to engage in the safer, more profitable parts.

The ministers are convening on Monday ahead of an EU summit on competitiveness scheduled for Nov. 7-8 in Budapest, where they will outline the EU's stance on related issues. They expressed readiness to jointly utilize EU taxpayers' money for public goods that benefit all 450 million EU citizens.

The draft states: "While private investment is vital, public financing also has an important role to play. European financing should focus on areas where public goods can be more effectively delivered jointly."

European financing refers to funds from the EU budget, approximately 1.2 trillion euros over seven years. However, several EU nations, including Germany, have opposed further joint borrowing after debt was raised in response to the COVID pandemic.

Cross-border electricity grids are identified as crucial European public goods, essential for providing lower and more stable electricity prices that attract business investment. The draft states that better functioning European energy infrastructure is critical to ensuring the EU's competitiveness, potentially reducing the need for energy subsidies and supporting economic growth by lowering costs for businesses and households.

($1 = 0.9211 euros)