There is a consensus on the EU's enormous need for investment. The EU Commission's Strategic Foresight 2023 assumes that an additional €620 billion per year will be needed to achieve the climate targets of the Green Deal and the energy targets of REPowerEU. Further massive investment needs are seen in the course of the digital transition and in defence policy. The Strategic Agenda 2024-2029 also refers to the need for joint investment efforts to increase the EU's competitiveness. For the financing, public and private funds are to be used. However, it is by no means clear how high the respective shares should be, how the risk will be distributed and how the actual implementation will take place.

Member States' room for manoeuvre is limited
The EU's new economic governance framework is dampening expectations with regard to comprehensive public funding. It is true that its aim is also to increase the level of investment in the EU, and the room for manoeuvre has indeed been extended compared to the old fiscal rules. However, the options for countries with high debts and/or deficits remain severely restricted. After the expiry of the Recovery and Resilience Facility in particular, these countries would have to significantly reduce current expenditure in order to be able to make the necessary investments. The think tank Bruegel warns that the new rules will excessively restrict necessary future investments. Trade unions even are worried that the new rules bring back austerity.

An „Investment Commission“. What can the EU budget contribute?
In the Political Guidelines 2024 - 2029, the EU Commission has set itself the goal of becoming an „Investment Commission“. In close cooperation with the European Investment Bank (EIB), public investment is to be maximised and a leverage effect and risk reduction should be achieved for private capital. Public procurement is to be better utilised and made more efficient, and the use of resources from NGEU (which expires in 2026) is to be ensured. The announcement that the EU budget for the next Multiannual Financial Framework is to be increased is a noteworthy development. „To ensure sufficient and sustainable financing for our common priorities“, new own resources are needed, according to the EU Commission. A new European Competitiveness Fund is to be used to invest in „strategic technologies – from AI to space, clean tech to biotech“.

From „Capital Markets Union“ to „Savings and Investments Union“?
Another key point is the deepening of the Capital Markets Union and the expansion of the EU into a Savings and Investment Union in order to promote private financing. Enrico Letta concluded in his report on the EU Single Market in March 2024: “If we don’t find a way to use private money to finance the green transition and our security needs. It will be very complicated to find a solution based only on public money.” In this sense, he proposes a variety of measures to turn the EU into a “savings and investments union”. At the end of June 2024, the European Council also referred to the “(...) urgency and the importance of the Capital Markets Union in mobilising the substantial amount of private investment needed to meet the challenges ahead”. The EU Commission estimates that a completed Capital Markets Union could attract additional investment totalling EUR 470 billion per year. It has announced proposals for “risk-absorbing measures“ to make it easier for European investors „to finance fast-growing companies.“ The aim is to financially leverage private savings in the EU and attract savings from around the world.

The limits of private financing
The Brussels-based think tank Finance Watch addressed the issue of financing in a study published in July 2024 titled “Europe's coming investment crisis. What if capital markets could only meet a third of Europe's essential funding needs?”. It concludes that, in the best-case scenario, only a third of the necessary strategic investments can be financed via capital markets. A financing requirement of 800 billion to 1.6 trillion euros per year would be met by 300 to 600 billion euros that could be financed via the capital market.

In fact, private financing depends on the expected return. If this is too low from the investors' point of view, there will be no financing. Given the high volume of private investment capital, financing via the capital market would be feasible if returns were adequate. However, according to the study, a large proportion of the oftentimes risky investments required to mitigate the climate crisis do not generate sufficient financial returns. Should the necessary investments not be made, though, the study warns of a fiscal time bomb that could go beyond the scope of public finances. The European institutions are called upon to initiate a pragmatic discussion on the EU's financial architecture in order to achieve the goals it has rightly set itself.

Financing as the foundation of a bright future - a big picture is needed
Clearly, there is a lot to consider when financing the high investment needs. The tax policy of the member states, the amount of the EU´s own resources and the consequences of the respective type of financing are also crucial. The area of social infrastructure is particularly sensitive, where private profit-maximising business models pose a risk to public welfare. Moreover, public funding not only leads to costs, but also to public assets. A just green and digital transition also means that neither the funding costs nor the risk should be one-sided imposed on low- and medium income earners.

Further Information
Enrico Letta: Much more than a market
AK EUROPA: Statement on the Letta report on the future of the Single Market
AK EUROPA: Capital Markets Union. Let’s be careful!
A&W Blog: EU-Binnenmarkt in der nächsten EU-Legislaturperiode. Analyse zum Letta-Bericht (only available in German)