A project within the Money & Finance" Program, run with support from the Charles-Léopold Mayer Foundation and the European Climate Foundation
Publications and events linked to this project
We urgently need to broaden the policy debate about how to finance investments in decarbonization and other strategic objectives, as underinvestment is one of the main reasons why EU countries seem unable to get on the right track to attain the goals they set themselves. Transition policies are being increasingly impeded by contradictions and trade-offs between main political objectives such as fiscal sustainability, security, international competitiveness and – further and further down the road – green investments. From the first announcements of the European Green Deal in 2019/20, doubts were expressed about whether it was possible to pursue ambitious transition policies without a general reform of EU’s macroeconomic governance . But things got much worse in recent years with the rapidly changing economic and geopolitical environment, in particular the new Trump administration’s climate and environment hostile policies. Europe faces now a much more complex global economy, having to compete with China on all clean tech fronts and beyond, while simultaneously dealing with new geopolitical risks and being heavily exposed to US financial markets, where increasingly different rules of the game apply.
As a result, conditions are set for a “a perfect storm for 2025-2030” , in the field of green investments but also in strategic sectors and reshoring global value chains. On the national level, many countries such as France face increasing fiscal pressure, and cuts already affect green investments negatively. On the EU level, the main source of EU-grants for decarbonization (the Recovery and Resilience Facility) is running out, additional funding remains limited and focused on defense, whereas unflexible fiscal rules remain inconducive to public green investments.
The political thrust lies currently on reviving the Capital Markets Union ; i.e. on the savings and investments union (SIU) presented by the EC in March 2025, while other options do not obtain much attention. Some suggested SIU reforms within the framework are promising – European long-term savings and investments accounts, cross-border supervision, common and enforceable ESG standards, increased use of loan guarantees provided national promotional banks/EIB and the European Stability Mecanism (ESM) to encourage long-term investment – while others seem questionable from the point of view of financial stability and productive use of funds – securitization, alleviated prudential regulations. But the main point is that SIU will unlikely solve the investment problem by itself ; at the very best it can be a part of the solution.
One reason for this lies in the fact that, in spite of years of debates and a series of action plans and legislative measures, the EU still lacks an effective sustainable finance framework capable of guiding private investments where they are needed . The other lies in international finance. “Bringing back” savings and investments – the overarching objective stated in Letta, Draghi and Noyer reports – is easier said than done in a globalized financial system, in which capital flows are free and the US remains the dominant financial center with the dominant currency.
Most importantly, the implicit or explicit assumption behind the SIU is that Europe will “bring back” savings and investments by closing the competitiveness gap with US financial centers, becoming just as interesting for potential investors. But this looks likely only to a limited extent ; on one hand, US remains in a dominant position and engages in aggressive deregulation while the Trump administration flags for a strategic use of finance for geopolitical purposes . On the other hand, the very nature of investments needed call for a strong public finance component, as the risk-profit profile does not interest private investors – otherwise these investments would have been realized already. In other words, “unlocking” capital markets might increase investments in some segments of economy but not necessarily in the right ones. And yet, tools for directing strategic investment already exist in specific sectors, for instance the French SMEs in the defense sector receive special financial assistance to counterbalance low profitability, and financially fragile positions that characterize this strategic sector.
This is the main rationale for proposing more and alternative financial tools and regulations for developing strategic sectors, reshoring value chains and green investments : they are all concerned by a potential mismatch between specific financial needs and what the SIU arguably can achieve. The Draghi report invited EU to develop an active economic strategy and economic planning of a new kind, but SIU proposals reflect the “old” world, leaving key allocation decisions to the markets.