There is never a good moment for a crisis. But the timing of the latest events that gripped the world – from the pandemic to Russia's invasion of Ukraine and the recent Israel-Hamas war in the Middle East – turned out to be especially unfortunate. Those multifaceted crises have increased uncertainty and pushed up prices, with ripple effects in Europe's poorest regions. But they also endanger the continent’s ability to invest on the scale required to meet the climate emergency and to build a more digital economy. Europe needs significant investment to remain competitive, innovative and strong enough to resist future shocks.
The continent must channel sufficient resources to strengthen its leadership in digital technologies, maintain its advantage in cleanenergy technologies and decarbonise its economy in a way that protects the most vulnerable by 2050. However, Europe is being outspent by major international competitors. The European Union trails the United States in productive investment to the tune of 1.5% to 2% of EU gross domestic product per year, according to the European Investment Bank Investment Report 2022/2023. This situation has persisted for at least a decade now. It cannot continue. We need to put our money where our gap is.
Getting money where it's needed
Europe is pioneering the green transition. What used to be a priority has now become an emergency. Russia's invasion of Ukraine has made Europeans aware of our overreliance on imported fossil fuels. High oil prices caused a major deterioration in the European Union's terms of trade. At one point, this drove a depreciation in the euro and resulted in imported inflation.
While the rising cost of living drives down living standards for everyone in Europe, some groups are more exposed than others. Think of poorer, younger and less qualified households whose finances took a hit during the pandemic and who tend to spend a higher portion of their income on food and energy. Countries with higher inflation and higher inequality, such as those in Central and Eastern Europe are likely to see the biggest increases in poverty.
What can be done to stimulate the investment that Europe needs? It is clear that public policies supporting investment in sustainable areas like digital and green innovation are the best way to protect Europe’s people and to create high-quality jobs. Well-designed policies, proper incentives and a strong commitment to investment are needed.
Credit must flow to the most innovative and transformative projects in all sectors and regions of the European Union to ensure a transition that leaves no one behind and supports cohesive and sustainable development. Investment in the European Union is stifled by impediments that must be addressed immediately with coordinated national policies and the active use of European regulatory, competition and monetary policy. We need to do more with the scarce public funds we have and use them better. But above all, we need to attract private investment and direct it toward green and cutting-edge projects.
This can be achieved by de-risking instruments. Well-targeted risksharing through loans and guarantees put forward by EU institutions can boost investment and crowd-in private sector investors. Take the example of the European Tech Champions Initiative that the European Investment Bank Group founded this year.
This fund of funds will provide latestage growth capital to European innovators, who currently find it difficult to raise capital to scale up their business. This support is crucial, not only because it keeps Europe competitive but also because many of the essential technologies needed for an orderly energy transition are not yet commercially available, or if they are, they are too expensive. This is especially important in sectors that are hard to decarbonise like aviation or the heavy industry. Here, the world is on the look-out for clean alternatives that also work economically.
Some of those alternatives might be backed by dedicated EIB support to REPowerEU, a European Commission plan to rapidly reduce dependence on Russian fossil fuels and fastforward the green transition. The European Investment Bank is committing an additional €45 billion over the next five years, on top of its regular lending to clean energy projects.
At a time of high interest rates, our REPowerEU financing offers essential funding, including for risky, highly innovative projects. By taking on part of the risk, we make those projects more attractive to private investors. This worked 20 years ago, when we supported offshore wind farms, and we are confident that it will work for other sectors too.
Investment in climate action and environmental sustainability is especially important for lessdeveloped cohesion regions and for those struggling with rising energy prices. Prioritising green, digital and innovative investments can boost regional economies, while reducing carbon emissions and strengthening Europe's independence. It's no use closing the investment gap if we don't address those other issues. To do so risks exposing some European regions to the chill of poverty and division. Coordinated programmes are needed to strengthen our economy and keep us safe and prosperous.