Private cash, levered by public money, must dominate EU investment, ministers say
By Jan Strupczewski
BRUSSELS (Reuters) – Europe’s investment needs in the economy’s green and digital transition, defence and research should be financed by private money, with public cash serving only to leverage it, European Union (EU) finance ministers will say on Monday.
Their statement, a draft of which has been seen by Reuters, will form part of the EU’s debate on what the bloc must do to effectively compete with the United States and China in new technologies while eliminating CO2 emissions to prevent climate change. Last month, former European central Bank president Mario Draghi said in a report that the EU needed up to 800 billion euros ($868.48 billion) of investment per year, or up to 5% of GDP, to keep pace economically with rivals. EU finance ministers will make clear they cannot provide such money and that Europe must develop capital markets so private cash can flow more easily. “At a time when public finances have been affected by multiple crises and gradual and sustained fiscal consolidation is needed, the necessary investment should come primarily from private sources,” the draft statement said. “Public funds are scarce and best used as a catalyst for leveraging private capital in areas with positive spillovers.”
Leveraging in this case means that a relatively small amount of EU money covers the most risky aspects of an investment project, encouraging private investors to crowd into the safer and more profitable parts of it. The ministers meet on Monday ahead of an EU summit on competitiveness on Nov. 7-8 in Budapest, where EU leaders will issue their own declaration on the topic. The ministers’ statement says they would be ready to jointly spend EU taxpayers’ money on EU public goods – services and infrastructure that serve all of the bloc’s 450 million citizens across borders. “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,” the draft said. European financing means money from the EU budget, now around 1.2 trillion euros over seven years. Several EU countries, including Germany, have ruled out more joint borrowing for joint investment after the EU debt raised to deal with the COVID pandemic. Cross border electricity grids are often listed among European public goods. The ministers’ draft statement said their development was essential to ensuring lower and more stable electricity prices that would attract business. “This, in turn, would lower fiscal pressures by reducing the need for energy subsidies and support economic growth by lowering costs for businesses and households,” the draft said. “Well-functioning European energy infrastructure is of European common interest and vital for the EU’s competitiveness,” it said.
($1 = 0.9211 euros)