Now is the time to move, says Italy’s former minister of economic development, infrastructure and transport.
by Corrado Passera, Illimity Bank CEO
The writer is Italy’s former minister of economic development, infrastructure and transport. This article appeared on FT June 29 2020
Budget wrangles dominate much of what normally happens in Brussels. But we can expect even more wrangling in coming weeks as the European Commission’s €750bn pandemic recovery fund proposals are chewed over by member states.
Heated debates about how to pay, and who will pay, for this ambitious plan have gained a fresh intensity in these hard times. Questions of “solidarity” — which to some is simply code for richer nations subsidising poorer ones — will loom large.
Yet common interest requires that we move boldly and quickly beyond this plan and use this difficult moment to realise Europe’s full potential. The EU’s very future is at stake. So Europe should quickly agree the recovery fund — at a lower amount, if that’s what it takes — and then move on immediately to generate a new, growth-enhancing, multitrillion euro federal investment plan.
"Europe can be a powerful force in the increasing superpower competition that exists in the cultural, economic and military realms."
Why should this happen? Because Europe is struggling to overcome its deepest recession in a century. At the same time, it faces the existential challenge of increased competition from China and the US — with the battleground heavily skewed towards technology, where the EU has fallen behind.
Our common interest therefore requires a game-changing level of federal investment. This should be worth at least 20 per cent of the EU’s economic output over the next five years, equivalent to €4tn-€5tn. It should also be financed via anew layer of federal EU debt. The idea of creating a federal layer of EU debt is blasphemous to some. But the visionary proposal by German chancellor, Angela Merkel, and French president,Emmanuel Macron, to issue substantial amounts of federal debt for the recovery fund already clears a significant hurdle.
The investment programme I am suggesting will also allow capital markets to play their full part, for the first time, in driving Europe forward. The funds raised should be aimed at developing critical physical and digital infrastructure, such as high-speed rail and a pan-EU data cloud; targeting projects to create sector champions like Airbus in other industries such as microelectronics and telecommunications; and speeding up the transition to green energy. A key aim is that Europe becomes a world leader in technology. If it caught up with the US in terms of digital and artificial intelligence technologies, this could add€3.6tn to the region’s annual output by 2030, McKinsey estimates.
Investors, for their part, will be attracted to the federal eurobonds. First, they would carry near risk-free status, being backed both by the European Central Bank and the collective fiscal strength of the EU’s 27 members. Second, diversification away from the US dollar will have investor appeal.
To be clear, this investment programme is not about dealing with legacy debts, nor about bailing out poorer member states. Nobody should ask other countries to bear the costs of past debts; each country would remain accountable for its existing debt. However, governance of this programme will be crucial, as the record of managingEU investment programmes is not blemish free. Federal investments would be selected, managed and funded at EU level as the money raised would be used exclusively to fund federally-relevant projects.
A task force should also be created, headed by a special commissioner, with transparency of fund deployment. The European Investment Bank could play an important supporting role. Launching this federal programme would have beneficial knock-on effects. It could help allay EU electorates’ understandable fears of the future and deter dangerous results in the EU’s various upcoming elections. While Brexit is — in my view — ahistorical error, we can reduce the likelihood of other EU exits by moving without delay.
Europe can be a powerful force in the increasing superpower competition that exists in the cultural, economic and military realms. It has a vital offering that balances freedom and equality, merit and solidarity, identity and openness. These are the hallmarks of European civilisation.
But to achieve this, EU leaders have to think big and act quickly. As Ursula von der Leyen, the European Commission president, said in May, we need a Europe “that works at top speed when it feels as though the whole world has pressed pause”.Welcome to your blog post. Use this space to connect with your readers and potential customers in a way that’s current and interesting. Think of it as an ongoing conversation where you can share updates about business, trends, news, and more.
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