MNI: Draghi Calls For EU Funds To Support Huge Investments
MNI (BRUSSELS ) - The European Union needs to boost centralised funding whilst maintaining budget discipline to support an additional EUR750-800 billion in annual investment spending over the next few years, former ECB President Mario Draghi said on Monday in a long-awaited report on boosting European competitiveness.
Boosting investment in the bloc to 27% of GDP from 22% today will entail a bigger rise than seen in the post-WW2 Marshall Plan, Draghi said, calling for a push to complete Capital Markets Union to boost non-bank financing and for the EU to consider delaying repayments under its NGEU post-Covid recovery plan.
A rise in productivity will be "fundamental" to Europe's transformation, said Draghi, who argued for "common action" on key public goods like defence procurement and power grids, as well as centralised EU budgetary allocation to support hundreds of billions of euros in spending to strengthen the supply chain for semiconductors.
Draghi noted EU and IMF simulations showed that an investment push of around 5% could be sustained by the resulting increase in output of around 6% within 15 years, although inflationary pressures would be likely during the transition phase. (See MNIINTERVIEW: DraghiReportLikely To Call For EUBorrowing)
“If the investment-related government spending is not compensated by budgetary savings elsewhere, primary fiscal balances may temporarily deteriorate before the investment plan fully exerts its positive impact on output,” Draghi said.
"The EU can meet these investment needs without overstretching the resources of the European economy, but the private sector will need public support to finance the plan."
Draghi called for the issuance of a common safe asset "on a more systematic basis" in order to underpin an EU Capital Markets Union and so lower the cost of capital for private sector financing of his transformative proposals, but said stronger fiscal rules will be required to ensure that public debt at the national level is put on a more sustainable path.
"In this way, all EU Member States could contribute to such an asset without prejudging the sustainability of their public debt. Issuance would also have to remain mission and project-specific."
Draghi also called for reform of the EU budget to make it more streamlined and flexible, increasing its focus "on jointly agreed strategic projects and objectives, where the EU brings the most added value" and he proposed a competitiveness pillar in the next long-term budget which is due to be presented by the Commission next year.