To compete with Chinese and American companies, Europe needs to be able to retain private capital and inject it into strategic projects. The Capital Markets Union (CMU) may be the solution, according to the President of the European Council, Charles Michel, who referred to the CMU as a possible European equivalent of the American ‘Inflation Reduction Act’ (IRA), at a press conference with former Italian Prime Minister Enrico Letta on Wednesday 17 April. The latter has been asked by EU leaders to draw up a report on the internal market, which he will present to the European Council on Thursday 18 April.
In Europe, “the gap is widening between innovation and investors”, said Mr Michel, reaffirming the need for greater financial integration in the EU. How? The President did admit that there would be different sensitivities around the CMU management table.
On the other hand, the European Investment Bank should play a major role in investing massively in the future, according to Charles Michel.
Enrico Letta’s vision for better integration of the financial markets
The Capital Markets Union (CMU) needs “strong political mobilisation” to mobilise Europeans’ savings and finance the ‘green’ and digital transitions, writes Enrico Letta in his report (see EUROPE 13392/1).
He advocates the creation of a ‘Savings and Investments Union’: “True integration of financial markets in Europe will not be realised until European citizens and policymakers recognise that such integration is not merely beneficial for finance itself, but is crucial for achieving overarching goals that are otherwise unattainable”.
On the subject of financial supervision, which is causing the most dissension among the EU27 (see EUROPE 13392/1), Mr Letta believes it is “crucial” to move towards more integrated supervision of the EU’s financial markets. He admits that “a single, centralised supervisor in the EU at this stage may be premature, potentially overlooking the benefits of proximity to the diverse local financial markets and economies within the EU”. He went on to point out that supervision at national level is also “inadequate”.
The former Italian Prime Minister has also put forward a number of proposals to stimulate capital movements. These include the creation of a long-term European savings product and a “European green guarantee”.
Combining private and public investment
Attracting private capital is therefore of crucial importance, but for Mr Letta “it has become increasingly clear that relying solely on private investments will not be sufficient to meet the EU’s extensive financing needs”.
In this reflection, the EU must be absolutely attentive to the issue of fair competition between Member States. The current rules on State aid contribute to the fragmentation of the internal market, according to Mr Letta, who is calling for them to be revised to incorporate a more European dimension. He bases his thinking on a contribution mechanism, which would be funded by the Member States to finance pan-European initiatives. In the long term, such a mechanism could “lay the groundwork to initiate a wave of genuinely European public investments”.
State aid should also be subject to new conditions applied uniformly by each Member State in order to genuinely pursue the EU’s competitiveness and sustainability objectives, according to Mr Letta.
Important projects of common European interest (IPCEI) must also be continued and developed, according to the former Italian Prime Minister.
Another public lever for supporting the EU’s ambitions in terms of ecological transition is public procurement. Price should no longer be the main criterion for awarding contracts, according to Enrico Letta. Ideally, factors such as quality, life-cycle costs and wider social and environmental benefits should be taken into account. He also stresses that these standards should be common to all member countries and interoperable.
Integrating the telecommunications market
Enrico Letta’s report identifies a glaring lack of integration not only in the financial markets, but also in the telecommunications and energy markets. In the case of telecommunications, this fragmentation “hinders the scale and growth of pan-European operators, limiting their ability to invest, innovate and compete with their global counterparts”, he said.
To guarantee the long-term future of the sector and its players, he calls for a “consolidation” of the telecoms market by establishing a “single European regulatory authority” by 2025. The authority would be responsible for the EU’s transition from an approach based on “flexible” cooperation between national players to a more integrated model, managed at pan-European level.
The Italian also calls on the EU to work towards full harmonisation of the radio spectrum, the fragmentation of which “compromises the ability of mobile operators to offer pan-European services”, while taking into account the national security dimension of radio waves.
The general idea of broader harmonisation at infrastructure level is already present in the Commission’s White Paper published in February (see EUROPE 13355/8).
Integrating the energy market
The EU’s decarbonisation objectives require greater integration of the energy market, according to Enrico Letta. The interconnectivity of energy systems is part of the solution. This requires, in particular, mutual confidence between Member States in their ability to supply and receive the energy they need, according to the author of the report, as well as the elimination of barriers to interconnection: “It is essential to redouble our efforts to eliminate barriers to interconnection in order to strengthen security of supply, increase flexibility and reduce price volatility”.
Mr Letta mentioned the idea of a Clean Energy Deployment Fund to facilitate investment in “net zero emission” technologies. It would complement the Innovation Fund.
In the long term, up to 2029, Mr Letta suggests creating new financial instruments such as green bonds to attract private capital for infrastructure projects.
Other avenues of work
In his 147-page report, Enrico Letta also discusses the principles of a circular economy, the freedom of movement of citizens, the freedom to innovate and the importance of the EU’s trade policy.
According to Belgian Prime Minister Alexander De Croo, Mr Letta’s report marks an “important milestone” in the debate on industrial policy. “The next step is to put it into practice. The internal market must adapt to today’s reality”, he said on his arrival at the European Council.
See Enrico Letta’s report: https://aeur.eu/f/btd (Original version in French by Bernard Denuit, Isalia Stieffatre, Léa Marchal, with the Editorial staff)