(Bloomberg) -- The European Union needs common borrowing to compete with the United States and ensure a future of growth and innovation for the continent, European Central Bank Governing Council member Fabio Panetta said.
“At the root of the European economy’s low productivity lies its insufficient capacity for innovation, which in turn is due to the lack of dynamism in the business sector,” he said in a speech on Tuesday. “In the last decade, investment in research and development by European companies has been about 60% that of US companies, and the gap has been widening over time.”
The Bank of Italy governor pointed out that currently the bloc’s public debt consists mainly of borrowing for the EU Recovery Fund, whose outlays will end in 2026.
“From 2028 onwards, the outstanding volume of EU bonds will start to decrease, reaching nearly zero over the next three decades,” Panetta said. “Creating a common fiscal capacity to finance public goods would help Europe overcome this anomaly.”
The speech echoes a report by former ECB chief Mario Draghi in which he said the EU needs to mobilize an extra €800 billion ($840 billion) of investment a year in order to revamp its defense spending, develop new technology and meet its goals for the energy transition. Draghi said the best way to do that is to issue more joint European debt.
Germany has balked at the notion, concerned about the risks of putting resources in common, while French President Emmanuel Macron has said the EU needs to find a solution or risk falling behind.
Panetta said common debt “does not imply the creation of a ‘fiscal union’, and would require neither an EU finance minister nor mechanisms for systematic transfers between countries. The idea, instead, is to set up a common spending program to finance investments that are indispensable for all European citizens, through a continent-wide productivity compact.”
He paraphrased English economist John Maynard Keynes, saying “what matters is not to do better or worse those things which the Member States are already doing, but to do the things that are not being done at all.”
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