It seems as if Enrico Letta deliberately avoided recommending new common debts to the EU in his report. He calls for more public investment, but without the usual demand for Eurobonds. The former Italian prime minister and current director of the Paris Jacques Delors Institute is due to present his report on the future of the internal market to European heads of state and government this week. The European Council and the Commission commissioned him to do this. A summary was circulated in Brussels in advance as the essence of the more than 400 appointments that Letta recently attended across Europe.
An EU threatened by war, which is only slowly emerging from crises, which has to make huge investments with the green and digital transformation and whose share of the global economy has shrunk significantly, must reinvent its internal market, writes Letta. In addition to more incentives for private investments, this also includes a new framework for state subsidies. This is traditionally narrow in Europe so that non-financially strong countries like Germany use state money to increase the imbalance between the 27 member states. Instead, the EU is working to ensure that states move towards one another in terms of their economic performance. The strict state aid rules are suspended until the end of 2025 – a response to the corona pandemic, which was extended as a result of the Russian war of aggression.
But this may lead to distortions because wealthier countries can afford more. As a way out of this dilemma, Letta suggests enforcing the aid rules more strictly at national level and at the same time gradually expanding “financial support at EU level”. “Specifically, we could imagine a state aid contribution mechanism that would require Member States to allocate part of their national resources to finance pan-European initiatives and investments,” writes Letta.
Many EU states no longer have any scope for government investments
In addition, he calls for more public spending at the EU level. In global competition, the EU must develop an industrial strategy that works in response to measures taken by other global powers – for example Inflation Reduction Act of the USA, with which the government of US President Joe Biden is spending hundreds of billions of euros on the decarbonization of industry. “Without adequate resources, there is a risk that progress will not occur,” writes Letta. “The costs of change are systemic and must be borne collectively.”
Enrico Letta calls for more public spending at EU level.
(Photo: Domenico Stinellis/AP)
This is where he comes closest to the topic of Eurobonds, which is not only unpopular in Germany. In fact, many EU states no longer have any scope for new government investments. Take France, for example: The country recently surprised with an expected national deficit of more than five percent this year and next year and will be forced to save under EU debt rules. The voices of those calling for common EU debt at least for investments in security and defense have recently become louder. So far, however, the 800 billion euro Corona reconstruction fund is considered a historical exception. From this, money borrowed collectively is distributed among the member states.
There is little surprise in diplomatic circles in Brussels about the Letta report. It is said that there are “evergreens” in it: for example, the expansion of the internal market to include areas that were originally excluded. These are primarily telecommunications, the energy and financial markets – things that have been discussed in Brussels for a long time. Will it trigger a boost if Letta presents his findings and demands at the European Council on Thursday? It’s more likely to be a case of: It’s good that we talked about it.