Delano started off the online interview on 24 November by asking Enrico Letta, the former Italian prime minister and rapporteur for the EU and the future of the single market, whether he was planning to meet with the new Luxembourg prime minister  (CSV) or the new finance minister during his visit. “It is too early to meet them, but I plan to come back… maybe in January 2024.”

He stated that he is coming in Luxembourg to meet investors and businesspeople at the European Investment Bank for a tour of European capitals that started in Madrid. Letta said that he will deliver a report on 21 March 2024 that will include observations and solutions.

I understand that your role is to come up with solutions and/or reforms to improve European Union’s competitiveness, right?

“The world around us has changed tremendously while the single market is still using the rules from 30 years ago,” noted Letta. “Should we want to sit at the same table as for the other large world players, we need to be united… with a single person to represent us all.”

There is a need to revisit the single market, its competition rules and to set the scene to help European firms to gain scale. He reflected his concerns about a tendency toward a fragmentation of the single market. He thinks that many member states believe that the solution to tackle the lack of competitiveness or crises such as covid, energy or migration lie with national solutions. “They do not work… and they make it more difficult to achieve a common solution.”

Lack of EU competitiveness is seen by many as a slow-moving cancer that appears impossible to solve in Europe given the consensual structure of the EU. He thinks that addressing the challenges related to competitiveness are too often addressed only at the national level. “No major competitiveness issues can be solved at the national level,” said Letta.

“The EU has liberated itself from the dependence of Russian gas in twelve months, an outcome that was unthinkable,” said Letta. He thinks that this a demonstration that working together enables policymakers to find good solutions for its citizens and businesses.

Where should the EU gain scale?

The EU is made of small and large states. Yet large European states are not seen as large enough to play against other world players.

Each telecom operator in China has in average 400m clients, in the US it is 100m and in Europe it is 5m. He sees scaling as crucial in innovation research, connectivity and finance. He sighs at the lack of significant mergers and acquisitions of European banks whereas investment banking is monopolised by US groups. As for banks and telecoms, he also sees the European energy groups as large but not large enough.

He is also concerned about European startups migrating to London or to the US on the back of a weak capital market in Europe. He goes as far as saying a European capital market “does not even exist… as it is very weak and very fragmented.”

Transitioning toward the green transition

Letta is particularly concerned about the impact of the weak capital markets on financing the green transition. “ was a great idea but it will end soon… and there is nothing on the table afterward.” Moreover,  he noted that the programmes were very much based on national plans.

He thinks that 2% of GDP will be required to finance the green transition. “Either that money is financed from national budgets where governments have expressed not much enthusiasm, or it comes from the capital markets,” said Letta. “There is therefore a need to build a capital market… and a capital union that will make it attractive to invest in the green transition…  its various industries… and to keep European savings on the continent instead of seeing it fleeing to the US.”

Letta thinks that the solution may also come from large pension funds, “unfortunately not yet the size seen as in the US” and “financial products that will bridge retail deposits with the financing of the green transition.”

The four EU freedoms are central to the green transition

“[The freedom concept] has worked out well on free movement of goods, fairly well on people movement, but works very badly on free movement of services and capital,” said Letta.

Moreover, he thinks that some competition rules need to change to support the scale-up of the three industries outlined above. “For Europe to become more sovereign, to achieve a superpower status, too often seen as the privilege of national states, it needs to avoid relying on bygone industrial policies.” Letta is concerned that relying on those policies may put at risk the four EU freedoms.

Managing down regulations: a European approach

In January 2017, Trump signed an executive order requiring cutting two regulations for every new regulation added. Delano questioned Letta whether it could not be a reasonable approach in Europe?

Letta will suggest in his report that further single market regulations for several sectors are not added on top of current regulations, but are rather replacing and eliminating national regulations.

Adding punch to your bucks

Letta intends to confront head-on the issue that state aid at the national level is too often greenlit by the EU. “They should be the exception and not the rule…otherwise it leads to fragmentation and go against the principle of the single market,” stated Letta.

He thinks the value of the single market is best reflected by the participation of Norway. Despite not being part of the EU, the country pays a “large check” to be part of it without participating in the decision process.

What should be the role of Luxembourg to promote competitiveness?

As one of the founders of the EU, he noted that “Luxembourg has always been a pro-Europe country and an engine of European integration.” He expects the country to continue to defend the single market and avoid the temptation of fragmentation. “The death risk for the EU is to revert back of the warmth of our borders, flags and our national languages,” said Letta.