At the beginning of September, the former President of the European Central Bank (ECB), Mario Draghi, submitted his long-awaited report on the competitiveness of the European economy to the President of the European Commission. The report’s assessment of Europe’s declining rate of growth and innovation is implacable and worrying, and the major strategic guidelines outlined (strengthening innovation, decarbonising the economy, reducing dependency) are, in principle, likely to win consensus. However, the question of the concrete reforms to be implemented remains, as does the issue of financing the needs, estimated on an annual basis at €750-800 billion.
We interview Debora Revoltella, Director of the Economic Analysis Department, European Investment Bank (EIB) Group.
Q1. How has the Draghi report been received at the EIB, both in terms of its grasp of the problems and the recommendations it makes, and in terms of the very exhaustive method employed by his team? What impact do you think it is likely to have on the programme of the European legislature?
Debora Revoltella (D.R.): The report is a call for action for European productivity and competitiveness. It resonates well with the “raison d’être” – and indeed the strategy – of the European Investment Bank (EIB) Group. The need to enhance EIB productivity, focusing on structural long-term challenges, productivity, innovation, the “net zero” transition, but also economic security and defence, while thinking “more European”, EU single market and the EU saving and investment union echoes well with what we do. Less detailed in the report, but extremely important, are the need for investment in skills, social investment, cohesion, but also the new focus on how to support agriculture and biodiversity. The report was originated as a less formal report – commissioned by the European Commission as an expert report. However, what is interesting is that it is making its way into the EU policy agenda – it clearly informed the Political Guidelines of the new Commission and was widely used to draft the Commissioners’ mission letters – which means it will influence EU policymaking!
Q2. The Draghi report focuses on the problem of European productivity and the lack of innovation. Do you agree with the analysis of the causes of Europe’s technological decline (i.e. sub-optimal ecosystem, obstacles to commercialisation, ineffective public funding of breakthrough technologies, etc)?
D.R.: One of the main points of the report is the need to do more in terms of scale-up finance. This is something very important from an EIB Group standpoint, and we have been signalling this gap many times. Innovative firms in Europe face constraints at early stages of their life, but the constraints increase as firms grow. When firms are scaling-up – ranging from market valuation between 500 mn EUR and 20 bn EUR – the situation becomes really complex. Venture capital funds are not large enough to support those companies. At exit stage, EU firms often resort to options outside of Europe. A third of scaleups exiting through an IPO (Initial Public Offering, editor’s note) end up listed on a US stock exchange. Over 50% of M&A (Mergers and Acquisitions, editor’s note) acquisitions involve a foreign buyer. And this is due to a number of reasons, including the sub-optimal role of large innovative EU companies as catalysts for those M&As, but also the lack of alignment of public investors with the broader EU strategy. In this context, the Draghi report calls for bringing more resources to the EIB Group (EIB and European Investment Fund, EIF).
Q3. Concerning the decarbonisation of the European economy, the second strategic priority set out in the report to which the EIB Group is massively committed, do you think that the discretionary and variable approach advocated in the report, in terms of trade and industrial measures, is the right one to reconcile decarbonisation and competitiveness?
D.R.: What I like of the report is the clear spelling out that a new holistic approach is needed, combining a vision for the EU energy market, industrial decarbonisation, and attention to international competition. This is crucial, as the energy market on the supply side has to go through intense transformation – renewables deployment is accelerating, but there is still vast uncertainty, and it will take at least one decade for a stabilisation. In this period, the report suggests all technologies compatible with climate neutrality should have a role. The report is also remarking the importance of investments in grids, which are indeed crucial. It is also speaking about how to win industries out of decarbonisation through innovation, something I consider extremely relevant and important and where indeed the EIB Group is actively involved. I am personally more concerned on advises in terms of variable and discretionary approach. Our analysis shows that particularly in high energy intensive industries, any regulatory uncertainty is reducing incentives to transform. At the same time, regulatory uncertainty is also hitting the business model of those players betting on the “net zero” transition and quickly adjusting. Somehow, I am afraid uncertainty becomes an additional concern for firms during the “net zero” transition.
Q4. Is Mario Draghi’s call for an “external economic policy” combining trade, investment, supply and development partnerships a welcome proposal for reducing the strategic dependencies that are undermining European economies?
D.R.: The role of the EU does not stop at its borders. I believe it is extremely important to look at EU policies and the EU geopolitical role in a continuum. So indeed, also looking at strategic dependencies, value chains security and resilience. But all considering that the EU has a lot to lose in a scenario of deglobalisation or even regionalisation of trade, thus keeping the right balance between efficiency and economic security.
Interview conducted on 31 October 2024
Interview with Simon Hix
