Pension savings to finance Draghi’s giant investments?

The EU has lost its position among world powers. Without a clear change in direction, the economy threatens to get stuck in a painful downward spiral.

This is what Mario Draghi, the former Prime Minister of Italy and President of the European Central Bank, points out in the EU competitiveness report.

Geopolitics has changed to an unfavorable position. In technology, the EU has fallen off the US bandwagon. Europe failed to take advantage of the first digital revolution led by the internet.

Now the EU is also on the brink of another big wave of development. For example, the lion’s share of pioneering artificial intelligence models have been developed in the United States. In quantum computing, five out of ten leading companies come from the United States or China. None of them come from the EU.

The problem is that Europe has not been able to create new innovative sectors that would be able to compete globally.

According to Draghi, the EU should make massive investments to meet the challenge. The problem is funding. Currently, finding both public and private funding for investments seems impossible.

Funding is very bank-driven, which does not fit well with new frontier-breaking innovations. European capital markets are underdeveloped and fragmented.

The regulation of the main financing channel, i.e. banks, can be eased. Existing funding channels, such as the EU Investment Bank and its programs for scaling innovations, can be better utilized.

One opening in the report is the utilization of pension savings. According to Draghi, the EU should direct household savings to more productive investments. According to him, the easiest and most effective way to move forward would be through pensions.

Draghi has noted that the EU’s pension funds are underdeveloped and pension assets are largely concentrated in a few member countries further north in Europe. In these member countries, the active use of supplementary pensions has led to a better channeling of household savings into productive and innovative investments.

In addition to financing, the problem is regulation. The report recognizes that regulation has grown excessively without the new rules being sufficiently questioned by the member countries. This has led to the enactment of laws that could have been better formulated at the local level, closer to citizens and businesses.

Member states have a tool to challenge the Commission’s proposals, but it has hardly been used. The report calls for a Union-wide investigation into the reasons for member states’ inaction. At the same time, all existing laws and regulations must be combed through with the idea that there should be fewer rules. They need to be clearer and serve their purpose better.

The future EU Commission will probably use Draghi’s report as some sort of guideline. At least the disease picture is well mapped. Some of the medicines might also be effective.