But the SIU is not designed to address the underlying reasons for weak investment in areas where financial flows are misaligned with strategic priorities. The only additional EU policy tool proposed for steering financial flows towards political objectives is “blending” private and public funding through the InvestEU fund and the future Competitive Fund. But closing the investment gap will require complementary measures in financial regulation and monetary policy.

This policy brief is a part of the "New approaches in transition finance" project

KEY MESSAGES

• Closing the gap requires steering tools, not only scaling tools. EU’s investment shortfall is not primarily a problem of insufficient finance, but of finance that is systematically misaligned with strategic priorities. Many of investments which are highly relevant to EU’s policy objectives present risk-return profiles that do not match private investors’ expectations.
• The SIUs drive for stronger market integration as about scaling ; it promotes the common European market but does little to steer finance towards these investments.
• The same goes for the revival of securitization, a central piece of the SIU. The additional investments promised through banks balance sheet are theoretical and there’s no guarantee that they will concern investments of relevance for the EU’s policies. In addition, securitization might create new financial risks.
• The SIU missed the opportunity to opt for green securitization with strong conditionalities.
• Measures to improve access to venture capital are important to scale up technological innovation, but these segments do not reflect the overall financing needs of the economy.
• Financing strategic objectives relies therefore on public subsidies and blended finance instruments.
• Complementary measures are necessary and could be deployed in the fields of financial regulation, monetary policy and macroeconomic coordination.