HASAt a time when the new French Prime Minister seems to announce a return to budgetary austerity, Mario Draghi’s report has the merit of avoiding ambiguity: Europe is facing “an existential challenge”And to meet this challenge, we will need to invest massively. To ensure decarbonisation, digital transformation and defence, annual investments would need to increase by 5% of European gross domestic product (GDP). These levels (the share of investment would rise from 22% to 27% of GDP) have not been reached since the 1970s and represent a historic leap forward; the Marshall Plan, for example, accounted for only 1% to 2% of GDP.
But how to do this? Public funding is mentioned for two reasons. Firstly, because it would be unrealistic to expect the private sector to cover all this additional investment; secondly, because public funding must help to attract private funding. The report insists on the need to ensure the regular issuance of a common safe asset to finance European public goods and regrets the limited size of the Community budget. More than welcome reminders in the current context.
However, the central theme of the report remains the mobilisation of private capital. Mario Draghi points out that, despite the fact that household savings in Europe are higher than in the United States (€1.39 billion versus €840 billion), since the 2008 crisis there has been a gap between American and European private investment, which has not been compensated by greater public investment. So there was simply less investment. The report therefore raises an essential question: how to mobilise these private savings?
Stimulus to investment
A number of measures are mentioned: tax incentives, acceleration of securitisation, capital markets union (CMU). The issuance of a common safe asset is also presented as a way of achieving the CMU and not as a tool to free up more public funding. And it is specified that the counterpart to an increase in common debt should be the establishment of stricter European budgetary rules, while the new rules are already riddled with arbitrary thresholds and have been negotiated ignoring the issue of financing the transition.
To mobilise private capital, the report focuses on productive investments. It considers that this stimulus could have a short-term negative impact on public finances, but that it would be largely offset by an increase in productivity. This observation overlooks the fact that the transition requires a significant proportion of unprofitable investments: energy renovation of housing, social support for the most disadvantaged, repairing climate damage. According to the consultancy McKinsey, almost half of transition investments would not be attractive to the private sector. This is also the observation of the Pisani-Ferry Mahfouz report, which proposes an equal distribution between public and private financing.
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