Gentiloni: new common debt for EU defense is crucial

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«If we want to strengthen European defense, we must finance it together», this is «something very important for the very future of the EU». The European Commissioner for Economy, Paolo Gentiloni, said this to Bloomberg on the sidelines of the annual Euronext conference in Paris. In the new rules of the Stability Pact “there already exists a form of incentive for defense spending”, but “I am referring to something more: I think that common funding is needed to incentivize purchasing European defense”, underlined Gentiloni, reiterating that “the use of joint funding might be crucial.”

Gentiloni: capital markets union crucial for investments

Not only. Gentiloni highlighted the importance of the union of capital markets to relaunch investments. «Our strength – he said – lies in our unity and our internal market is our greatest economic resource. We need to unlock the potential of deeper capital markets in Europe. Now more than ever, we must give European businesses the chance to grow through innovation and investment. The completion of the Capital Markets Union is therefore not an objective in itself, but a key ingredient to support the EU’s broader strategic interests and to help finance our common objectives.”

Private investments necessary for the digital and green transition

For Gentiloni «capital markets are fundamental to mobilize the massive private investments necessary to achieve green and digital transitions. We have estimated the annual need for additional investments until 2030 for the green and digital transition at 650 billion euros, and neither of them will obviously be completed by that date. Although they are getting bigger, EU capital markets remain relatively small and fragmented on a national basis: in terms of share of GDP, their size is smaller than that of the US and UK – stock market capitalization is equal to approximately 55% of GDP for the EU; 158% of GDP in the US and 71% in the UK. European businesses depend on bank loans for around 70% of their financing and on capital markets for the remaining 30%. In the United States, as you know, it is more or less the opposite”, observed Gentiloni.

Gap with USA widens, competitiveness key challenge

In the current context of growing geopolitical tensions and weaker growth, «the issue of Europe’s competitiveness is at the top of the economic agenda. Closely linked to this is the question of our sovereignty, or strategic autonomy, in key sectors. New challenges, such as rising energy prices and more activist industrial policies globally, have exacerbated existing ones, in particular Europe’s lackluster performance in terms of productivity and innovation.” The widespread fear is that the gap with the United States might widen further and that we continue to lose ground compared to other global players. «There is no silver bullet to improve our competitiveness – the EU commissioner said in this regard -. But if we compare Europe with the United States, a clear contrast is the depth of capital markets, the unequal access of businesses to finance and the unequal cost of financing for businesses across the single market,” explained Gentiloni.

The effects of shocks

Gentiloni also underlined how the European economy has demonstrated «remarkable resistance in the face of multiple shocks. We managed to disengage ourselves from Russian gas to a large extent and avoided a European-wide recession. Inflation is gradually returning towards the ECB’s target. Employment is at an all-time high. And financial stability is present, which was not a given if we look at the crises we have experienced.” However, these shocks took their toll. «In 2023 growth was just 0.4% and was negative in 11 EU member states. On the other hand, the US economy recorded an expansion of 2.5%”, commented Gentiloni