In his latest piece for Expansión, Antonio Madera, Chief Economist and Senior Director CRO SF at FIG & Sovereign, analyses the implications of Mario Draghi’s proposal for joint debt issuance to finance Europe’s competitiveness.
The Draghi report stresses the need for Europe to improve its competitiveness so that its citizens do not lose their living standards.
But given the lack of fiscal resources, it suggests the use of common debt issues to finance this.
In this article, Antonio Madera Del Pozo analyses the implications for Europe’s financial stability of an approach that is not new, given that deep structural changes to the current financing system are needed if such a proposal is not to undermine the solvency of the strongest countries.
“According to the Draghi report, Europe risks falling behind global powers such as the US and China unless it takes decisive action. The report stresses the need for €800 billion per year to address three urgent challenges:
1. Closing the innovation gap.
2. Aligning decarbonisation with competitiveness.
3. Reducing dependence on critical suppliers such as China.
Draghi’s solution for financing? Joint debt issuance, similar to the NextGenerationEU initiative. But as Antonio Madera points out, this approach isn’t without risks.
Without deep structural changes to the EU’s fiscal system, joint borrowing could threaten the financial stability and solvency of the Union’s stronger economies.
Bold, collective action is needed if Europe is to maintain its citizens’ living standards. Joint borrowing could offer a lifeline, but only if it is backed up by fiscal integration and discipline. It’s about finding the delicate balance between solidarity and responsibility to ensure Europe’s financial stability and global competitiveness.
The stakes are high: managed well, common debt could position Europe as a united economic powerhouse. Mismanaged, it could undermine its strongest members.”
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