Common debt not ‘essential’ for EU competitiveness, says Draghi

The regular issuance of common EU debt along the lines of the bloc’s €806.9 billion pandemic recovery fund is not “essential” for Europe to remain competitive with China and the US, Mario Draghi said on Monday (30 September).

In comments that appear aimed at easing the concerns of fiscally hawkish member states, the Italian technocrat expressed dismay that much of the discussion surrounding his recent report on the EU economy has centred on his proposal for a successor to the so-called NextGenerationEU (NextGenEU) programme.

“This [call for a successor to NextGenEU] was the very first thing people reacted to in the whole report,” Draghi said at an event hosted by Bruegel, a Brussels-based EU policy think-tank.

“I have to say, as much as I love this concept, it is not the main thing in the report," the former ECB president said, adding, "There are many good reasons for having it, [but] it is not an essential ingredient.”

Draghi’s report, published earlier this month, called for "regular and sizable issuance by the EU of a common safe and liquid asset to enable joint investment projects" across the Union and "help integrate capital markets," thereby “building on the model of NextGenEU.”

However, the report also noted that the issuance of more joint debt could only happen "if the political and institutional conditions are in place".

NextGenEU marked the first time the Union's 27 member states agreed to issue common debt to finance an EU-wide investment facility.

The report's proposal was quickly rejected by the Netherlands and Germany, two traditionally ‘frugal’ member states, which strongly oppose renewing the post-pandemic funding programme beyond its scheduled expiry in August 2026.

Conversely, it received strong support from Spain – one of the largest recipients of NextGenEU funding – as well as France, whose president, Emmanuel Macron, has repeatedly stressed the need for such instruments to finance key investments, especially in defence.

Despite the Recovery and Resilience Facility (RRF) – the flagship programme of the NextGenEU – having been dogged by allegations of late payments, misspent funds and irregularities, its renewal beyond 2026 has also received support from influential EU policymakers.

For example, Economy Commissioner Paolo Gentiloni has called for turning the RRF into “blueprint” for future EU investment programmes

Eurogroup President Paschal Donohoe has similarly described NextGenEU as “the piece in the jigsaw” that will allow member states to comply with the EU stringent new fiscal rules while giving “a higher priority to capital investment that we have done in the past.”

Draghi himself pitched the continuation of common debt issuance as an important catalyst of private market liquidity in his report.

"As several of the [needed EU] projects are longer-term in nature – such as financing research and innovation and defence procurement," Draghi wrote. "Common issuance should over time produce a deeper and more liquid market in EU bonds, allowing this market to progressively support the integration of Europe’s capital markets."

A ‘relatively conservative’ estimate

On Monday, the former central banker also emphasised that the report’s estimate of a “minimum” of up to €750-800 billion per year in additional green, digital, and defence investments may be a “relatively conservative” number.

In particular, he noted that the figure – which amounts to roughly 5% of the EU’s annual GDP – does not include any additional financing for education or climate adaptation or protection.

He also said that simulations by the European Commission and International Monetary Fund (IMF) suggest that the proposed sum could become more economically and politically feasible with just minimum gains in productivity – in the area of 0.2% a year for 10 years, according to the IMF.

“Even with a small increase in productivity," Draghi said. "The overall amount is realistic. And the public funding [needed] is less."

Support for energy-intensive industries' 'relocation'

Draghi also defended his call for subsidies to retain energy-intensive industries in Europe – much of which are based in Germany, Europe’s traditional manufacturing powerhouse.

He noted that sectors such as steel, aluminium and chemicals produce goods that “go everywhere in our economies” and are used in consumer and defence products.

“We cannot simply [let these industries go to] some other country outside [the EU]. We want to retain scientists,” he said.

“[They] are also, like other [industries], not on a level playing field with foreign competition. So the case for supporting them is, I think, unquestionable.”

Draghi also suggested that, in the future, policymakers could help facilitate the “relocation” of such industries to other parts of Europe to take advantage of cheaper green energy costs.

He also said that Europe’s strong welfare state should cushion the impact of such relocation on ordinary citizens – and mean such change will not be as keenly felt as in the US in the 1990s.

“We are in a better position than the United States. We have a strong welfare system... So there is no danger [that] we actually abandon people,” Draghi said.

[Edited by Anna Brunetti/Martina Monti]