European industrial policy and Capital Markets Union: Enrico Letta’s plan for the Single Market

A “Europe of Power” is needed to respond to international developments, along with a European approach to industrial policy to counteract fragmentation risks and completion of the EU’s Capital Markets Union (CMU), former Italian prime minister Enrico Letta told Euractiv.

In September, Letta was tasked by European institutions to come up with an independent report on the future of the EU’s Single Market that the European heads of government will discuss at a meeting in March 2024.

Fittingly for the current president of the Jacques Delors Institute, a Paris-based thinktank, Letta wants to rekindle the spirit of Jacques Delors, whose “Delors report” from 1989 laid the basis for the creation of today’s Single Market.

“We all see that the dream of Delors’ Single Market is really less present today,” Letta told Euractiv, hoping this could be changed through engagement with citizens and a convincing narrative.

A lot has changed since Delors’ glory days, however.

For Letta, three main events have “profoundly shaken” the Single Market: Brexit, COVID-19, and Putin. According to him, these challenges, along with the increased economic competition from China and the United States, force Europe to see the Single Market not just at a European level but at a global level.

Fragmentation and industrial policy

In a geopolitically more tense world, the Single Market must also ensure European power and its industrial strength.

“The real question is how we can attain this objective of a ‘Europe of power’ [editor’s note: ‘Europe puissance’] without destroying the system of the four freedoms,” Letta said, pointing to the free movement of goods, capital, services, and people that are at the basis of the Single Market.

Currently, he fears Europe is undermining its Single Market: “The explosion of state aid that we have witnessed due to the crises in the past years is worrying.”

As he tours Europe to gather impressions and opinions for his report, he hears a lot of concerns, mainly from smaller countries who cannot afford to subsidise their industries to the same extent as Germany or France, who together make up more than 70% of the national state aid approved by the EU Commission in recent years.

“There’s a profound divide between large countries and small countries in the EU,” Letta warned. But, while stakeholders in smaller member states tell Letta that they want a stop to the state aid splurge, a return to the world of 2019 is not possible either.

On the one hand, the world has changed, and on the other, Letta argued, three years of weakened state aid rules have led to a complete change of philosophy.

“We cannot go back. COVID and Putin have changed the picture in such a way that we have to go forward.”

And for Letta, going forward means going European.

“I don’t think we can leave all of this just at the national level,” he said, talking about the industrial policies that were needed: “We have to think about which European policies could help in this direction.”

Capital Markets Union

On Monday (9 October), Letta will appear in front of the European Parliament’s economic committee to gather the perspectives and opinions of the people’s representatives on the topic of the Single Market, and specifically about the Capital Markets Union (CMU) that Letta regards as essential for how he sees the EU use the Single Market for his “Europe of power”.

“Without a functioning European financial market, there will be no powerful Europe on the global stage,” he said while lamenting that today’s “fragmentation of the European capital markets is one of the weaknesses of Europe.”

In the past weeks, ECB leaders like Christine Lagarde and Fabio Panetta have also called for the completion of the CMU, with executive board member Panetta arguing that this required the establishment of a European Safe Asset, comparable to the US Treasury bonds, which would mean a significant fiscal integration on the EU level.

“I think that Panetta’s position is very strong, and I share it,” Letta told Euractiv, adding that he was aware of the political sensitivity of the subject.

Working with Mario Draghi

Letta is not the only high-level politician drafting a report on the future of the European project. The EU Commission tasked Mario Draghi, another former Italian prime minister and former president of the ECB, to write a report on how the EU can ensue its future competitiveness.

While Letta’s report is due in March, Draghi’s report is due a little later in early summer. According to Letta, the two politicians are in contact and collaborating.

“We are lucky to be two persons who respect each other a lot and who have always worked together in the past, so that’s easy.”

For his own report, Letta hopes that it won’t get lost in the drawers and that it will help shape the debate for the next European legislature that starts in the summer of 2024. He knows, however, that all will depend on the political situation next year.

Théo Bourgery-Gonse contributed to the article.

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[Edited by Alice Taylor]

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