Speech by Executive Vice-President Dombrovskis at the Eurofi 2023 Financial Forum

Eurofi speech - Sept 2023

Ladies and gentlemen

It is a pleasure to be with you today in Santiago de Compostela. Thank you for inviting me.

When I was last with you in April, we talked of the difficulty of dealing with events of the previous few years.

How Europe's economy had shown remarkable resilience and agility in the face of some serious shocks.

Earlier this week, the European Commission published its Summer Economic Forecast. It finds that the EU economy remains on a growth path, which is commendable in itself.

Europe's strong, coordinated response has helped us to avoid recession and an economic crunch. Nevertheless, the high inflation rate has taken its toll, although price pressures are now easing.

After some weakness, we see more promising signs for 2024, when the economy should stage a mild rebound, underpinned by strong labour market and record low unemployment.

Still, it is slow progress. The EU economy remains at a critical stage and there is a lot of uncertainty and downside risk.

Our common recovery plan – NextGenerationEU and the Recovery and Resilience Facility – allowed us to achieve a fast recovery.

It is a boost of confidence for our economy, guaranteeing a constant stream of investment to sustain jobs and growth.

Looking ahead, our focus is on how best to secure sustainable growth for the longer term.

To keep the economy on the right track, it is all the more important for Member States to carry out the reforms and investments in the national Recovery and Resilience Plans.

More broadly, we are looking at how to boost the EU's productivity, competitiveness and creating the right conditions for businesses to flourish within the European social model.

Regulation must be simple, smart and targeted: for example, by looking at how we can reduce administrative burdens and reporting requirements.

As President von der Leyen announced in yesterday's State of the Union address, next month the Commission will present the first legislative proposals towards reducing reporting obligations at European level by 25%.

In addition, an independent board will conduct a competitiveness check for every new piece of legislation.

We are aiming for a conducive business climate, transparent and with legal certainty. And most importantly, helping to attract investment.

This is what I would like to focus on today. I cannot stress enough the importance of investment for economic growth.

Given the scale of the investment required, this will primarily have to come from the private sector. There are major structural adjustments: a large-scale economic transformation.

We need private investment to meet our key economic policy objectives: the green and digital transitions, the EU's greater competitiveness and its open strategic autonomy.

The EU has been tackling these challenges on many levels, including by partnering the public sector with the private equity and venture capital sectors.

For example, the European Investment Bank Group has played a key role in addressing SME financing gaps via investments in venture capital, private equity and private credit funds.

In particular, the European Investment Fund has gradually increased its equity activity in recent years, to reach a planned investment volume of more than €5 billion for 2023.

The bulk of this investment is for competitiveness and growth, innovation, sustainability and green transformation.

In many cases, these operations are backed by EU budget support, which allows these investments to be partially de-risked and thereby catalyse private investment.

Then, of course, we have the Capital Markets Union.

It is central to the work that we are doing to support investment in Europe and keep our economy competitive. This project is more important than ever, and we remain firmly committed to it.

Deepening and further integrating Europe's capital markets is the most cost-effective step that we can take to drive investment.

The Commission is well on track to complete the 2020 CMU Action Plan. Recent political agreements on key CMU initiatives show that all EU institutions share the objective of improving access to funding for our companies.

But we cannot be complacent.

We must stay ambitious and move fast with adopting the remaining proposals. And we will keep working to tackle the remaining barriers and frictions so that investments and savings flow freely across the EU.

The bottom line is that without the CMU, investment and growth would be more limited. So we continue to welcome input and reflections from all interested parties on how we can further develop the CMU.

Regarding investment from the public side, the RRF is an excellent starting point. Member States are now carrying out the reforms and investments identified in national plans.

These are already making a difference on the ground.

The ongoing revisions of the plans, based on REPowerEU, will further orient resources to the right priorities.

Our proposals for reforming the EU's system of economic governance are designed to ensure sound public finances across all EU Member States.

They allow countries to moderate fiscal efforts in conjunction with carrying out reforms and investments in line with EU priorities that improve fiscal sustainability and potential growth.

The idea is for national policies to become more prudent so that countries can rebuild fiscal buffers, and to help us secure sustainable growth for the future.

Ladies and gentlemen

As I mentioned earlier, we need to look at Europe's wider business environment to generate the investments needed across a wide range of areas – especially for innovation.

Nearly all innovation involves investment and requires appropriate and sufficient financing to research and development of new products and processes.

If Europe is to stay competitive in the global marketplace, it means constant investment in innovation and technological leadership. For example, the Green Deal Industrial Plan for the Net-Zero Age sets out our strategy for uptake of clean technologies.

We also proposed a Strategic Technologies for Europe Platform to help support the technologies and value chains that are vital to the green and digital transitions.

It aims to channel more EU funding to support the development of manufacturing in the EU of critical technologies and supply chains, and to address related labour and skills shortages.

Investing in R&D, innovation and the right skills is crucial for Europe to succeed and to lead on the green and digital transitions.

To be honest, when the United States introduced its Inflation Reduction Act, this was a wake-up call. It focused our minds on the importance and urgency of securing investments in innovation in Europe.

We welcome its climate ambitions, but our concerns relate to the protectionism. The Act, as it stands, entails the risk of a drain of EU companies. Its approach also seeks to re-direct investments of key trading partners like the EU towards the United States.

Obviously, we do not want that to happen.

So, we have been working hard to find pragmatic solutions with the United States to limit the negative effects of the IRA, so we can instead focus on working closely on our common strategic interests.

At a time when the world is becoming increasingly conflicted and polarised, Europe needs a solid network of strategic, like-minded and reliable partners.

The shocks that I referred to earlier – the COVID-19 pandemic and Russia's aggression against Ukraine – led us to take a hard look at our economic dependences and risks to our established supply chains.

We also know of areas where trade and investment pose risks to our economic and national security, particularly in the context of China's fusion of its military and commercial sectors.

Just a further word on China. Here, the EU has an unbalanced economic relationship, with a very large trade deficit.

We have many areas to discuss.

To this end, I will travel to China later this month to co-chair the EU-China High-Level Economic and Trade Dialogue with Vice-Premier He Lifeng. This is scheduled for 25th September.

As key trading partners we should be able to discuss opportunities for cooperation, as well as irritants and challenges in our relationship.

While the preparations for the High-Level Dialogue are currently in full swing, I am cautiously optimistic about landing some specific deliverables in the area of financial services.

I will also use my visit to China to reassure my counterparts that the EU does not want any decoupling. Instead, the EU's economic security strategy is guided by the principles of proportionality and precision.

Our approach is to maximise the benefits of openness, while minimising our strategic vulnerabilities: in other words, to de-risk - by first gaining a deeper and exact understanding of the risks that we face.

It is based on three pillars:

• promoting the EU's competitiveness;
• protecting our economic security using a range of existing tools, while also considering new ones; and
• partnering with the broadest possible range of reliable partners to address shared concerns.

So how does this affect investment?

Businesses are the often first to suffer from crises. With geopolitical tensions clearly on the rise, they bear the brunt of the economic fallout.

Our economic security strategy aims to uphold a predictable business environment in Europe and to de-risk economic overdependences so that investing in Europe remains attractive.

And it aims to reduce the risks of geo-economic fragmentation, which can potentially have enormous ramifications for the global economy.

Research from the International Monetary Fund suggests that some fragmentation is already taking place, with changing patterns of foreign direct investment.

FDI flows are increasingly concentrated among geopolitically aligned countries, particularly in strategic sectors.

The more countries that move apart geopolitically, the more likely that geopolitical blocs in the world economy will emerge – and not only regarding FDI patterns.

The EU is open to foreign investment and capital flows – and will remain so. But this openness is not unconditional.

We put our FDI screening mechanism in place to make sure that the EU is equipped to identify, assess and mitigate potential risks to its security or public order.

As part of the economic security strategy, we will evaluate this mechanism based on three years of its implementation, with a view to improving its efficiency and effectiveness as needed.

Ladies and gentlemen

While our long-term priorities have not changed, sometimes we have had to adapt the means and methods for achieving them.

As I said at the start, our economy has shown remarkable resilience and agility. We should be proud of that, and of the EU's coordinated response to a series of harsh shocks.

This coordination is vital.

We can be confident for the future, as we continue working together to build a globally attractive business environment for innovation and investment, underpinned by a strong growth-oriented economy.

Thank you.