The Draghi Report: What “The Future of European Competitiveness” Means for Securitisation

On 9 September 2024 the report “The Future of European Competitiveness” was issued. The European Commission tasked Mario Draghi to prepare a report of his personal vision on the future of European competitiveness.

The report revolves around three main areas for action aimed at improving Europe’s competitiveness and reigniting sustainable growth.

1. Closing the innovation gap with the United States and China, especially in advanced technologies.

2. Implementing a joint plan for decarbonisation and competitiveness

3. Increasing security and reducing dependencies

The findings of the report will contribute to the Commission’s work on a new plan for Europe’s sustainable prosperity and competitiveness. In particular, it will help to facilitate the development of the new Clean Industrial Deal for competitive industries and quality jobs, which will be presented in the first 100 days of the new Commission mandate.

The report is divided into two parts: Part A (a competitiveness strategy for Europe) and Part B (in-depth analysis and recommendations).

This EDW blog focuses on Part A, section 5 of the report (Financing investments).

The report acknowledges the challenges to meet the investment objectives laid out in the report and states that the private sector will need public sector support (fiscal incentives) to achieve them.

The fragmentation of EU capital markets and the lower flows of savings into capital are identified as a key reason for low investment financing in Europe. The Draghi report points out three main fault lines that are hindering the construction of a Capital Markets Union:

1. The lack of a single securities market regulator and a single rulebook for all aspects of trading, as well as a lack of homogeneous supervisory practices and interpretations of regulations.

2. The disintegrated post-trade environment for clearing and settlement.

3. The unalignment of the withholding tax, tax and insolvency regimes across member states.

In addition, the report highlights the role of securitisation to increase the competitiveness of EU financial markets, considering the EU’s heavy reliance on bank financing:

“Securitisation makes bank’s balance sheets more flexible by allowing them to transfer some risk to investors, release capital and unlock additional lending. In the EU context, it could also act as substitute for lack of capital market integration by allowing banks to package loans originating in different Member States into standardised and tradeable assets that can be purchased also by non-bank investors.”

The small EU budget, the lack of a common safe asset and the lack of joint funding for EU-level projects challenge the financing of the competitiveness plan laid out in the report.

Amongst the takeaways to mobilise private and public finance at scale, the report includes:

1. The construction of a genuine Capital Markets Union supported by a stronger pension.

2. An increase of the financing capacity of the banking sector through securitisation and the completion of the Banking Union.

To read the complete report, please click below.