Europe’s growth is booming, and Finland hopes for jointly funded support measures. A large debt-financed fund focusing on business support is still not the best solution, writes Kauppalehti’s guest columnist Vesa Vihriälä.
Stuck in slow productivity growth, Europe is struggling with the new state support policy of the USA and the unfair competition that China has been practicing for a long time.
Investments that serve productivity and financial security flow elsewhere. The response of the large European countries, above all Germany, has been large national business subsidies.
It is naturally difficult for small countries to compete with such subsidies. That is why hopes have started to arise for the joint financing of support measures. For example, the Confederation of Finnish Business has proposed a fund of 400–500 billion.
Finland would not be in a good position
There are several good reasons for clearly increasing Europe’s joint efforts. But a large debt-financed fund focused on business support is hardly the best solution.
Europe’s biggest shortcoming is the weakness of developing and scaling cutting-edge technologies. Probably the most effective way to improve it would be to increase EU R&D funding targeted strictly on the basis of projects’ merits. And the orientation towards breakthrough technologies, such as the economic Nobel laureate Jean Tirole with partners present.
“The additional financing needs are largely permanent.”
I suspect that it would be clearly more difficult to implement a merit-based system with subsidies for production facilities. Germany and France, the payers of the largest national subsidies, hardly want to finance a joint effort without the certainty that they will receive a large part of the support on their own soil.
On the other hand, as the recovery fund shows, the cohesion aspect would probably be key. This would not serve efficiency, and Finland would not be in a good position in such a competition.
More justified debt-financed items
As far as corporate investments are concerned, the most promising course of action would be, on the one hand, to strengthen various risk financing instruments, for example through the European Investment Bank, in order to leverage private money. On the other hand, the ability to serve the common interests of the EU could be demanded more strictly from national subsidies than at present.
In addition, a clearly more purposeful approach is needed in the development of the internal market and especially the capital market union, and self-control in regulation.
Last week’s summit failure to agree Latvian the proposals regarding the capital market union do not bode well.
Even without large new business subsidies, the EU needs a larger budget than the current one to finance genuine EU-level public goods. Additional funding needs are largely permanent. Their most natural source of funding is new own funds and an increase in membership fees, not debt.
Debt is a reasonable means of financing when you are in a big hurry to spend a lot of money. Support for Ukraine and the coordinated ramp-up of the EU’s defense industry are more justified targets for debt financing than supporting investment programs spanning at least a couple of decades.
The author is an economist and visiting researcher at the University of Helsinki.