Two reports, one clear path: Joined-up thinking on public and private money is needed to fund European Innovation [Advocacy Lab Content]

4 months ago 34

The first half of 2024 has been a period of stocktaking for the EU. Last year former Italian Prime Minister Enrico Letta and former President of the European Central Bank Mario Draghi were tasked with drawing up comprehensive reports on the functioning of the Single Market.

Letta’s report came out in April and Draghi’s assessment is due in the coming weeks. These reports represent more than just the usual ‘how are we doing?’ appraisals. The EU’s greatest competitive edge is its Single Market and citizens’ wealth. The Single Market underpins the entire EU project so politicians and industry are looking closely at what these reports have to say.

The Letta report highlighted several areas where the Single Market is currently not functioning to its full potential. And based on his public speeches, Draghi’s report looks set to follow suit.

Letta has stated that innovation, resilience and the green transition depend on a robust and safe electronic communication industry. His report makes clear that financing the green, digital and just transition requires a tight link between an integrated financial services sector and the single market.

“The connection I make in the report is between the financial markets and the transition, and I make this connection for a very simple reason,” Letta told Euractiv. “Our savings are currently moving away from the European market and towards the American market, because the American market is more attractive. Once there, European savings are feeding the American economy – the same American enterprises that fly back to Europe to buy our companies with our money. That is totally paradoxical if you think about it. So my first point is that we need to integrate the financial markets to make them more attractive and to keep the savings of our savers in Europe.”

“If we are able to keep our savings here, we can create a link between these savings,” he said. “Next, we need to finance the transition. The transition is the most expensive and the most important mission we have. According to some figures, it will cost €500 billion per year. Others are saying €650 billion, but we need to cover this cost. My proposal to the member states is to cover this cost with a mix of public and private money. I say that because you know very well that in the European Council, there’s a conflict between countries thinking that only private money can pay for the transition and countries thinking that only public money can be the solution. My proposal is to combine both. So, I launched, in the report, the Savings and Investments Union.”

His thoughts have resonated with businesses across Europe. “The EU’s Single Market needs to strengthen its dimension in financial services,” said Generali, the largest insurance group in Europe, in a statement. “A Savings and Investment Union would allow the right transfers of capital to finance systemic infrastructures and projects the EU needs to get ahead of the twin transitions.”

Draghi is also on the record as saying that public spending alone will not be enough to achieve Europe’s green and digital objectives, particularly at a time of economic pressure. This means it

will be necessary to “mobilise private savings on an unprecedented scale, and far beyond what the banking sector can provide, by “deepening our markets for risk capital, equities and bonds,” he said at a recent event in Spain.

Outlining some of the main ideas from his report on EU competitiveness, scheduled to be delivered to the Commission next month, Draghi suggested simplifying and expanding the European projects of common interest, issuing more public debt, and “common financing.”

He was adamant that the EU must prioritise research and innovation as a “collective priority.”

According to Draghi, the biggest gap between the EU and the US is in the tech sector “There is significant scope for improvement simply through setting clearer priorities, streamlining regulation and better coordinating different financing instruments,” he said.

Both reports will contain recommendations to boost EU competitiveness and the insurance industry is keen to play its part and Insurers are ideally placed to invest long-term – particularly in strategic areas of research and innovation.

Take Generali as an example. In 2020 Generali launched Fenice 190, a € 3.5 billion investment plan to support the recovery of the European economies impacted by Covid19. The program aims to finance, through debt and equity instruments, infrastructure, innovation and digitalisation projects, support for SMEs, green housing, health facilities and education. In 2021, the company launched SME EnterPRIZE, an initiative to promote a culture of sustainability among European SMEs.

Given the current macroeconomic climate, Generali wants to “reaffirm the crucial role that insurance companies can play in facing insecurity. By definition, we ask for insurance services when we feel uncertain about our future, and our mission as a responsible investor, insurer, employer and corporate citizen should be to deliver a social, environmental and stakeholder impact for a sustainable transformation, especially searching for concrete solutions to give protection.”

Looking to the challenges of the future, it is clear that the insurance industry will have a key role to deliver on the competitiveness that both the Letta Report and the Draghi report will call for.

“In my view, the completion of the single market in the financial sector is one of the most important achievements that we need to have for the future of the single market,” concluded Letta.