Finance Watch Challenges Draghi Report on Funding and Financial Stability

10 September 2024 - 11:58 h

Media Alert

Finance Watch issues a response to Mario Draghi’s long-awaited report on the future of European competitiveness. The report effectively highlights the EU’s significant funding gap and appropriately recommends both public and private investment solutions. However, Finance Watch challenges the EUR 800 billion minimum annual investment figure and the report’s approach to prudential regulation.

Funding

Finance Watch welcomes the report’s recognition of the Europe’s urgent investment needs. However, even the much touted minimum annual investment figure of EUR 800 billion underestimates the true scope of the challenge. This figure does not seem to fully take into account European Commission estimates related to climate change mitigation and adaptation.

Relating the estimates provided by the Draghi report with prior estimates of financing needs linked to climate change and adaptation made by the European Commission, we believe the annual financing need of the EU is at least EUR 1200 billion annually, as opposed to the EUR 800 billion stated by the report. This makes starting the discussion on a revised public finance framework, including the possibility to raise finance at EU level, all the more important and urgent.

Thierry Philipponnat, Chief Economist at Finance Watch

Finance Watch welcomes the recognition that private capital will not be sufficient to finance the EU’s enormous investment needs. The report rightly advocates for public investment to complement private funds, a stance that mirrors Finance Watch’s own findings (released July 2024). As such, Finance Watch supports Draghi’s call for common European assets and the development of EU-level resources to fund large-scale investments, despite the significant political and legal challenges these recommendations face.

Financial Stability

The Draghi report’s view on prudential regulation is alarming, claiming the EU’s approach to the Basel framework has led to an ‘overly restrictive and cautious regulatory environment’. Financial stability is a vital component of a prosperous economy.

Boosting the depth of EU capital markets and raising finance at EU level are the right objectives. However, making prudential regulation the enemy of a dynamic and prosperous economy is both technically wrong and misleading: there is no such thing as a prosperous economy without financial stability, evidence shows that better capitalised banks bring more financing to the economy.

Far from being at risk of ‘gold-plating’ the Basel framework, the EU is actually at risk of not being compliant with the Basel framework as detailed in a letter sent by the highest EU banking regulators to the European Commission in November 2022.

Thierry Philipponnat, Chief Economist at Finance Watch

To arrange an interview with Thierry Philipponnat, Chief Economist at Finance Watch, please contact Max Kretschmer, Press Officer at Finance Watch, at [email protected] or call on +44 (0) 7999926545.

ABOUT

About Finance Watch

Finance Watch is an independently funded public interest association dedicated to making finance work for the good of society. Its mission is to strengthen the voice of society in the reform of financial regulation by conducting advocacy and presenting public interest arguments to lawmakers and the public. Finance Watch’s members include consumer groups, housing associations, trade unions, NGOs, financial experts, academics and other civil society groups that collectively represent a large number of European citizens. Finance Watch’s founding principles state that finance is essential for society in bringing capital to productive use in a transparent and sustainable manner, but that the legitimate pursuit of private interests by the financial industry should not be conducted to the detriment of society.

About Thierry Philipponnat, Chief Economist at Finance Watch

After graduating from Institut d’Etudes Politiques de Paris and training as an economist (Master’s degree in economics), Thierry Philipponnat started a career in finance in 1985, holding different positions in commercial and investment banking. He then crossed into the NGO world, campaigning and lobbying on behalf of Amnesty International, with a particular emphasis on corporate social responsibility and on the impact of the financial sector on human rights.

In 2011, he founded Finance Watch, which he managed as its first Secretary General until 2014. In October 2019, Finance Watch appointed Thierry Philipponnat as its Head of Research and Advocacy, and in January 2022 as its Chief Economist.

Philipponnat was a member of the Board of the French Financial Markets Authority (AMF) until 2022 and of the Sanctions Committee of the French Banks and Insurance Companies Supervisor (ACPR) until 2024. He chaired the AMF’s Climate and Sustainable Finance Commission as well as its Market Consultative Commission. He was a member of ACPR’s Climate and Sustainable Finance Commission and of its Scientific Committee. He is also a member of European Financial Reporting Advisory Group’s (EFRAG) Sustainability Reporting Board and formerly a member of the European Commission’s Platform on sustainable finance.

He is the author of numerous books and articles, and regularly offers comment in the media on a wide range of financial topics, appearing in the Financial Times, Al Jazeera, Reuters, Politico, Euractiv, Le Monde and more.