MNI INTERVIEW: Draghi EU Funds Call To Prompt Pushback

MNI (BRUSSELS) - Likely recommendations by former ECB chief and Italian PM Mario Draghi for centralised European funding for public infrastructure and the green transition are likely to be ignored by member states facing a surge in populist support, as are his calls for more progress towards Capital Markets Union, economist Daniel Gros told MNI.

Media coverage is likely to focus on aggregate recommendations for joint EU spending, and is likely to damage Draghi’s cause after he presents his report around the middle of next month, said Gros, director of the Institute for European Policymaking at Bocconi University, and a regular advisor to the European Commission and the European Parliament, as well as to eurozone central banks and national governments.

“There is one issue where Draghi will light some fireworks, which won’t be very productive but will attract a lot of attention,” he said in an interview, noting that it will be hard for the former ECB chief to hide behind typical EU euphemisms for joint funding such as the need to “mobilise resources.” (See MNI INTERVIEW: Draghi Report Likely To Call For EU Borrowing)

While the European Parliament and the European Commission will lend support, member states will demur, wary of populist feeling against more spending by Brussels, he said.

“You might have 200 pages of very good economic analysis - then the headline will be Draghi proposes EUR600 billion, or whatever it might be, for public goods,” Gros said.

POLITICAL WEAKNESS

The EU’s two heavyweights, Germany and France, are in no position to undertake big political projects, with the French trying to form a fragile new coalition government of left and right political parties, and Germany’s centre-left Chancellor Olaf Scholz often at odds with liberal Finance Minister Christian Lindner. The Dutch are “also more preoccupied with what is going on at home,” he added.

Claims from finance ministers and leaders that the push for more unified EU capital markets now has political momentum also miss the point, said Gros.

“That is mostly Sunday preaching,” he said, adding that when Capital Markets Union runs up against the ability of governments to protect their own national capital markets it will inevitably provoke resistance.

He recommends instead tweaking EU directives and regulations on key topics like insolvency and investment rules for insurance and pension funds, something that would help stimulate the growth of EU equity and risk capital markets.

“But it does run contrary to the risk-averse instincts of EU supervisors and regulators,” he concluded.