Europe's Investment Needs for the Green and Digital Transition

By Jan Strupczewski

BRUSSELS (Reuters) – Europe’s investment needs for the green and digital transition, as well as for defense and research, should primarily employ public funds to attract and enhance private investment, EU finance ministers stated on Monday.

This statement aligns with details from a prior draft reviewed by Reuters, and will be central to EU discussions on competing with China and the United States in advanced technologies while aiming to reduce CO2 emissions.

Last month, former European Central Bank president Mario Draghi suggested that the EU requires up to 800 billion euros ($870.80 billion) in annual investments—up to 5% of its GDP—to remain competitive against global adversaries.

EU finance ministers emphasized that they cannot achieve this funding alone, thus underscoring the importance of strong capital markets to entice private investments, particularly as public finances have been strained by various crises.

The limited public funds are deemed best utilized as catalysts for leveraging private capital in sectors with positive spillovers, according to their statement.

In this context, leveraging refers to using a smaller sum of EU funds to cover the riskiest segments of projects, thereby attracting private investors toward the safer and more lucrative portions.

The ministers convened on Monday in anticipation of an EU summit on competitiveness set for Nov. 7-8 in Budapest. They also expressed readiness to allocate EU taxpayer funds to services and infrastructure that would benefit all 450 million citizens across member states, categorizing these as EU public goods.

"While private investment is crucial, public financing continues to play a significant role. European funding should prioritize areas where public goods can be more effectively provided collectively," the statement affirmed.

Despite Germany and other EU nations opposing further joint borrowing due to existing COVID-19 debt, ministers have labeled cross-border electricity grids as vital for securing lower, stable energy prices for businesses.

($1 = 0.9187 euros)