A new report by Finance Watch, a Brussels-based public interest group, has highlighted an impending investment crisis in the European Union. According to the report, only a third of the EU›s essential investments can be funded by capital markets, leaving a substantial gap in financing crucial projects.
The report, titled «Europe’s Coming Investment Crisis,» examines the EU›s reliance on capital markets to fund the union’s plans for the 2024-2029 term, which includes significant investments in climate change mitigation and digital transition. The report finds that the current structure of capital markets may only support a fraction of these needs, raising concerns about economic stability and future fiscal health.
«With well-targeted regulation and significant political will, capital markets can fund up to a third of the EU›s climate needs. However, without additional public funding, the remaining two-thirds risk being neglected, leading to higher future fiscal costs,» said Thierry Philipponnat, Finance Watch chief economist.
The report calls on the European Commission to conduct its own assessment and to address the looming investment gap. It warns that failure to make necessary investments could lead to severe economic disruptions and a substantial increase in fiscal and social costs.
Capital markets cannot cover all needs
Benoît Lallemand, Finance Watch’s secretary general, echoed the call for a pragmatic discussion about the EU›s financial architecture. «Investing in and financing this transition is not just a financial decision,” he said. “If private finance will only cover 30 percent, it is imperative for incoming EU leaders to prioritise a comprehensive review of how the remaining investments can be secured.»
The report’s release coincides with an EU discussion on the financing of its new strategic agenda, which prioritises investments in green and digital transitions, economic competitiveness, and strategic autonomy. Former ECB president Mario Draghi, who is due to report on the EU’s competitiveness later this year, sees the need for an «enormous amount of money in a relatively short time». Former Italian prime minister Enrico Letta has called to channel «all necessary public and private resources» towards a fair, green, and digital transition.
‘To succeed, EU leaders will have to challenge their assumptions about how much capital markets can contribute,” Lallemand said in a statement. “If private finance will only cover 30%, as we fear, then it must be a top priority for incoming leaders of the European Commission and European Parliament to open a pragmatic discussion about the EU’s financial architecture so that their goals can be achieved.”