Enrico Letta: “European savings go to the US because it is more profitable”

The creator of the European single market has a first and last name, Jacques Delors.

Oliver Thansan
Oliver Thansan
11 May 2024 Saturday 22:27
3 Reads
Enrico Letta: “European savings go to the US because it is more profitable”

The creator of the European single market has a first and last name, Jacques Delors. Now, the person who presides over the Jacques Delors Institute, former Italian Prime Minister Enrico Letta (Pisa, 1966), is in charge of revitalizing a successful but exhausted invention. He presented his report for the transformation of the single market to the European Council, and now tells La Vanguardia the main lines of it. He warns that without transformation, decline is assured and proposes a capital market at the EU level to prevent the flight of European savings to the United States.

The single market is a success story. It has been so in the past, but it is not so clear that it continues to be so in the present. What is it that no longer works?

The single market is a success story, but it is also the single market that was built for a world that no longer exists, and inertia leads to decline. If the single market continues as it is, it is decadence, because the world around us has changed. I was fortunate enough to meet with Jacques Delors before his death to discuss this exercise with him. What he told me is that the geopolitical situation has changed. When he made the single market, the world was a small place. China and India together represented 4% of the world economy. Now they are 25%. Germany was not reunified. The Soviet Union was still there. There were 10 of us, then 12, and we called ourselves the European Community, not yet the Union. So the world has totally changed and the single market was created for that world. What Delors told me was that the report had to change the single market and make it fit for today's big world. The single market was good for a small world. Now we need a single market for a big world.

Is it the reason we lag behind the United States?

Yes, the reason is fragmentation because it prevents considerable levels of investment in innovation, for example. We are losing ground in innovation. Fragmentation is the root of all problems. One of Europe's successes is aircraft manufacturing. If we had a Spanish Airbus, an Italian Airbus, a French Airbus and a German Airbus, Boeing would keep it all. But we have a European Airbus and it is winning. There are areas where scale and integration are critical.

You talk about a European paradox, how European money goes to the United States and comes back to buy companies in Europe.

The real paradox is the fact that the US capital market is integrated, unique, and therefore very large and profitable. Our capital market does not exist at the European level. We have 27 markets. The Bank of France and the European Central Bank have estimated the amount of European savings that goes to the United States each year at 300 billion euros. And in the United States, savings are converted into actions that reinforce American companies that, strengthened, return to Europe to buy our companies with our money. This paradox is linked to the consequences of the fragmentation of our market. Do you know why we don't have integrated financial markets? Because everyone wants to wave their national flag in their country's market and, at the same time, because political leaders do not want to put their face next to the word finance.

How can this change be articulated?

I propose a mixed solution, private money with tax incentives to make Europeans' savings profitable if this drives the transition. At the same time, if we put private money in we can break the blockade of the Nordic countries, Germany and Holland, which do not want to give public money as they did with the Next Generation. But if we get a mix of public and private money I think they will accept it.

How do you get to this single capital market?

What currently prevents the single capital market is a false idea of ​​national sovereignty. Because if, to cling to your national market and the national flag in your national market, you create the situation that I mentioned, with the money going to the United States, the end is suicidal. It is not a plea for everything to become big, for everything to be like the United States. I like Europe as it is, a fantastic mix of small and big. You have to maintain the small one but the big one has to grow to be more competitive in today's world. When Delors created the single market, the leaders of his time told him: capital, energy and telecommunications markets do not touch each other. At that time, the large European countries were large enough that the national dimension was sufficient for telecommunications. Today, this national dimension has become the ceiling that prevents growth.

You talk about capital union and we have not even managed to complete the banking union.

Yes, and do you know why? Because the banking union was not created out of conviction, but out of necessity. And when things are done out of necessity, when the need ends, they stop being done. We created the banking union because of the economic crisis. If the leaders have asked me for a report it is because they are asking for a vision, they are asking for action, not reactions. The real difference is between reaction and action. Delors' Europe was the Europe of action. The Europe of recent years has been the Europe of reactions. And when you just react, it doesn't work in the end.

You propose creating European champions in telecommunications and energy. Doesn't this mean dismantling competition?

I don't want Europe to become the United States. I want Europe to continue being Europe, but more integrated. In Europe we have more than 100 telecommunications operators. In the United States there are three. Consumers here are happier than in the United States, but the telecommunications sector is in chaos. The proposal is to go from 27 markets to just one and apply competition rules to that single telecommunications market to guarantee consumer protection, but with competition rules at European level. Between the 100 European operators and the three Americans there is a middle ground.

In what period should your approach be applied?

Everything that appears in the report can be applied in the five years of the next legislature.