ECB's Panetta says Europe needs common debt to grow

ECB's Panetta says Europe needs common debt to grow

ECB’s Panetta Advocates for EU Common Debt to Spur Growth and Innovation

European Central Bank policymaker Fabio Panetta has called for a continent-wide "productivity compact" to address the EU's lagging economic growth and innovation gap relative to the United States. The proposal involves issuing €800 billion ($841 billion) in common debt annually through 2030 to fund strategic investments in infrastructure, technology, and research. Panetta emphasized that such a program would enhance productivity, a critical factor in closing the economic divide with the U.S., where GDP growth is projected at 2.7% for 2024 compared to 0.9% in the EU.

The initiative aligns with a September 2024 report by former ECB President Mario Draghi, which similarly advocated for €750–800 billion in annual EU investments to strengthen defense, energy transitions, and technological capabilities. However, Germany, the EU's largest economy, has resisted joint borrowing, citing fiscal risks. Panetta clarified that the plan does not require a "fiscal union" or direct transfers between member states but instead focuses on shared spending for "indispensable" public goods.

Panetta highlighted that European companies invest only 60% as much in research and development as their U.S. counterparts, exacerbating productivity challenges. He argued that a liquid secondary market for EU bonds could lower borrowing costs by improving liquidity and enabling risk-hedging instruments. Additionally, he noted that existing programs like the post-COVID Recovery Fund will exhaust their budgets by 2026, creating a funding gap that common debt could fill.

Strategic investments in emerging technologies and cross-border projects, Panetta stated, would strengthen the EU's single market, reduce duplication of national efforts, and unlock economies of scale. While the proposal faces political hurdles, proponents argue it is essential to maintain the EU's global competitiveness amid rising strategic and economic challenges.

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