The EU risks falling further behind the United States unless Brussels makes major changes to the single market to give it “teeth”, warned the author of a report to leaders on Thursday.
Enrico Letta, Italy’s former prime minister, has crisscrossed Europe and spent months preparing a report for EU leaders on what the 27-nation bloc needs to do to keep pace with other global economies, including China.
European businesses have been hit hard by the fallout from Russia’s 2022 invasion of Ukraine, which has sent energy prices skyrocketing, while they face a dual threat from heavy government subsidies and reduced regulation in China and the United States.
“There is a sense of urgency because the gap with the US is widening. We have to intervene quickly, there is no time to waste,” Leta told reporters.
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EU and US economic growth figures show the difference. The bloc grew by just 0.5 percent in 2023, compared with 2.5 percent in the United States.
Brussels especially fears being left behind in the technologies needed for the future, including solar panels, batteries, semiconductors and artificial intelligence.
The EU’s executive arm says an extra 620 billion euros ($660 billion) will be needed each year to finance clean energy and the digital transition.
According to Letta, Europe will need to mobilize private capital, but European startups are finding it difficult to access larger sums – often forcing them to cross the Atlantic.
Creating a real single market for financial services “is at the heart of the solution of how to finance the transition”, he said.
Letta wants a savings and investment union, pointing out how more than 300 billion euros a year leave European savings to be invested in the US market.
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For Letta, the single market that allows the free movement of goods, services, capital and people within the EU is too small.
It should be bigger and include energy, telecommunications and finance as well as defence, he argues. Currently, these markets are fragmented with different national rules making scaling difficult.
“We need a single market with teeth,” he said.
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Letta will present his report at a summit of EU leaders on Thursday.
In the document seen by AFP, Letta also warns of risks to the EU’s competitiveness vis-à-vis China.
“EU companies currently lag behind their global counterparts, particularly those in the US and China,” the report warns.
“Europe cannot and should not cede its role as an industry leader to others,” he says.
Among the report’s recommendations is an EU-wide contribution mechanism to address deepening anger in the bloc over different levels of state aid.
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The EU’s two largest economies, Germany and France, spend significantly higher amounts on national subsidies than the other 25 member states.
Brussels relaxed state aid rules in 2020 in response to the Covid pandemic, and did so again in 2023.
Source: AFP