Discussion by Kyriacos Pierrakakis with Enricos Leta on the future of competitiveness in the EU, at an event co-organised by ELIAMEP, IOBE and IE Competitiveness Hub.
“We need more consolidation in Europe, mergers of banks, larger companies,” Minister of National Economy and Finance and President of the Eurogroup Kyriakos Pierrakakis, in a discussion with former Prime Minister of Italy and Dean of the School of Politics, Economics and Global Affairs of IE University in Madrid, Enrico Leta.
The event was organised on the occasion of the 40th anniversary of the signing of the Single European Act. The moderator was Bloomberg Athens Bureau Chief, Victoria Dendrinou.
As the minister said, the real battlefield is technology. “And in the area of technology,” he added, “to be honest, we are already in Plan B, because we delayed too much. Europe needs a common strategy for what we call technological dominance. I would not exactly describe it as a doctrine, because realistically it is not possible to develop a European version of all technologies.”
According to Pierrakakis, overall, there are three directions, but the basic idea is one: we need a mentality of scale and a mentality of European champions. This means, among other things, allowing national champions to develop into European champions. Banking integration is an important part of this effort. The same applies to European start-ups. We can, the minister said, create startups in Europe and help them to grow, with a significant contribution from the European Investment Bank.
The debate
The debate between Mr. Pierrakakis and Mr. Letta is as follows:
“Question: Mr. Pierrakakis, you have been at the helm of these discussions for a long time, you have been participating in these meetings for quite some time. Based on how you read the climate, do you think Europe has what it takes to compete with the United States at this juncture? I mean, we’ve heard how great it’s been in the past, but the question is whether that can continue in the future in this environment.
Kyriakos Pierrakakis:I wouldn’t necessarily phrase it as “to compete with the United States.” What I would try to do, what I would try to facilitate, is capacity building, the ability to act. First of all, let me say that it is a great privilege to share the stage with Enrico Letta.
Addressing E. Letta, he said: “We were together in Brussels, as you said, last week and many times in the past. I really liked the way you put it, because I think to a very large extent the vocabulary dominates the discussion. What Enrico did with his report, and Mario Draghi did with his report, is essentially to shape the vocabulary around what we, as 27 finance ministry administrations in ECOFIN and in the Eurogroup, should be able to achieve, and what should be our common interest.
Common language is crucial, because we have to do the same things when we describe them. We need to have a common north in our compass. And that may sound obvious, but it really isn’t. That’s exactly why, last week, because of your Italian background, I described you and Mario Draghi as the two “popes” of European integration. But now that we have you in Athens preaching the gospel, I would say you are the ‘St. Paul’ of European integration.”
But by and large, we are starting late. We are very late in implementing change. Explaining to people what the Savings and Investment Union, the SIU,is, is extremely difficult. It is essentially a renaming of the Capital Markets Union and the Banking Union, which we have not managed to implement in time.
A little over a month ago I visited The Hague and my Dutch colleague, Elko Hinen, told me that the Capital Markets Union was already a priority of the Dutch presidency of the European Union in 2016. So this is a late discussion, but also an obvious discussion, because we basically need to build capacity in all these areas.
Some things are obvious, and here I would say that there are a lot of similarities with the Greek case when we took over in 2019. There is something in politics that I would describe as “the dividend of the obvious”. That is, the obvious thing that you didn’t do, that’s there waiting, and which, because it’s been accumulated over years, can, if you do it, pay a growth dividend, beyond your ideal or non-ideal response to what you couldn’t foresee, to unforeseen crises. So every policymaker in the world today has to have this two-pronged approach, both at the national level and at the European level. And Europe has a potential dividend if it implements the obvious: the elimination of these hidden barriers.
The IMF calculated – and we refer to this study often – that these barriers roughly correspond to tariffs: in services 110% and in manufacturing 44%. Even if one thinks that this method of calculation is not entirely accurate, it highlights for us what we need to achieve.
So the SIU has a lot of evidence. What are they? We need consolidation of the exchanges. Chancellor Murch said that in the EU there should be a single stock exchange. We need banking integration. We need bigger banks. We need more cross-border integration in Europe. Cross-border integration in Europe has declined since 2008, as we saw in a chart at a previous Eurogroup. If you compare the technology investments of European banks with those of US and Chinese banks, the European ones are much lower. And this is a sector that has also been transformed by technology.
So, getting a common understanding of all these issues, and yes, communicating them properly, is a sine qua non for moving forward. The stars are aligning because there are many exogenous events, from the Russian invasion of Ukraine to the overall loss of geopolitical innocence with respect to who should pay for the cost of our security.
When you add all of this together, there is a political current today that favors the implementation of these plans. What we as ministers need to try to achieve is actual political implementation. Because we all agree in theory with the Savings and Investment Association, but there is always an asterisk that usually reflects a national interest.
So, are you going to focus on the opportunity cost of not implementing or are you going to focus on the asterisk? That’s what will determine how quickly we can move forward. It won’t be a yes or no question. It will not be “black or white.” It will be a question of how much distance we cover in the field. And my sense is that in many of these areas, whether it’s the supplementary pension package that will be discussed or the market surveillance package, there will be progress. The question will be the amount of progress and the speed.
Question: So, Mr. Pierrakakis, no pressure not to miss this opportunity. I’d like to talk a little bit about the national and European champions. Do you think that Europe can realistically compete globally unless there is more concentration and unless companies are created that are big enough to act as European champions?
Kyriakos Pierrakakis: I think the question itself is, in a way, rhetorical. You can’t get the necessary size if you keep having 27 different versions of national champions. This debate is directly linked to both technology and cross-border integration. More integration of businesses and banks is absolutely necessary.
On this front, we are particularly proud that Greece has shown a very positive attitude, both in relation to UniCredit’s increased stake in Alpha Bank, and in relation to Euronext’s cooperation with the Greek Stock Exchange. This is, more or less, what should happen in every market and in every sector in Europe. We need greater scale and European champions that can compete internationally.
But the real battleground is technology. And in technology, to be honest, we are already on “plan B” because we have delayed too much. Europe needs a common strategy for what we call technological dominance. I would not exactly describe it as a doctrine, because realistically it is not possible to develop a European version of all technologies.
In some areas we are very far behind. But in others, we already have European champions who are ready to grow and create strong ecosystems around them. The problem is that we are not leveraging them and not moving fast enough on implementation.
A prime example is 5G infrastructure. During Donald Trump’s first term, US policies essentially targeted Chinese companies. Who were their main competitors? Not American companies, but two European ones – Ericsson and Nokia.The ideal European response would have been to have a single telecoms regulator, a single spectrum auction across Europe, and to use some of the revenue, via the European Investment Bank, to fund 5G applications.This is a discussion that should have been had in 2010, not 2026.
In technology, the goal is not to become fully autonomous, with only a few exceptions. The goal is to not be in a relationship of asymmetric dependence. There are technologies in which the United States is ahead, others in which China is ahead, and some in which Europe can lead. These are precisely the ones in which we need to invest. We need to fund the winners and help European champions to develop on a global scale.
There are, of course, areas where greater autonomy is needed for national security reasons or where Europe can gain a clear competitive advantage. Airbus is one such example. Galileo is another. In the other areas, Europe must act as a smart and technologically skilled regulator.
All in all, there are three directions, but the basic idea is one: we need a mentality of scale and a mentality of European champions. This means, among other things, allowing national champions to become European champions.
Banking integration is an important part of this effort. The same applies to European start-ups. We can create startups in Europe and help them grow, with significant input from the European Investment Bank. But at some point, many of them are unable to expand further because of the fragmentation of the European market. And often, at a later stage, they become Delaware companies and are almost necessarily dependent on US funding. This is not necessarily negative. But it should be an option, not a one-way street. The goal, then, is to create a level playing field by removing the barriers that still exist.
That is exactly what the Savings and Investment Association is seeking. Start-ups should be able to scale-up within Europe. And all European policymakers need to change their mindset. We need to think European when we talk about our champions. And we need to understand this quickly. Because, otherwise, we risk missing another extremely important opportunity – without an alternative plan.
Question: Some thoughts ahead of the next Eurogroup, one last question. We talked about the big countries, or countries that don’t know they are small. Can the smaller member states of the European Union have a say and an active role in shaping this agenda? Or in the end it all depends on what France and Germany want to do?
Kyriakos Pierrakakis: Absolutely. Not only can they, but they can play an even bigger role. An important part of this agenda is precisely about smaller countries. I mentioned, for example, the leadership that Greece is seeking to show in the area of cross-border integration and mergers and acquisitions. Many smaller countries, although often considered to be excluded from major developments, have managed to take the lead and produce tangible results. One only has to look at what the Baltic countries have achieved in digital transformation or what other countries have achieved in different areas.
In general, I remain optimistic. I would not like to comment on the political dimension, because part of my job is to deliver results, not just to describe how they might be achieved. In essence, the critical question is whether we can align our short-term responses to multiple emerging crises with our long-term strategic priorities.
To be honest, last year we presented an analysis of the effectiveness of our 2022 energy measures, with mixed conclusions.However, one of the key findings was that the negative impact of the current crisis is 12% less because of the measures the European Union has taken in the meantime: investments in networks, infrastructure and diversification from Russian energy sources.
This shows that when short-term interventions are aligned with long-term strategy, the results are substantial. The Recovery and Resilience Fund was just such a case: an immediate response to a crisis that incorporated long-term European priorities for green and digital transition.
So part of our job is to deliver results. And a key element of this mechanism is that we all agree on which direction the compass is pointing, which is our common north.
At the same time, we have to take into account all the national specificities and sensitivities that exist on many issues. At the moment, however, I see a clear political will on the part of European leaders. I had the opportunity to present the Eurogroup priorities to all 27 leaders and it was evident at the Euro Summit that there is strong momentum, both from the President of the European Council and from all leaders, for finance ministers to deliver concrete results soon.
The digital euro, for example, is estimated to be a reality by 2029, while many elements of the Savings and Investment Union will also start to be implemented soon. The question, of course, is how quickly and to what extent.
As Yogi Berra said,and it’s one of my favorite quotes: “It is very difficult to make predictions, especially when it comes to the future.” Politicians, by definition, are not the best at predicting. What I can say is that, as Enrico Letta mentioned, right now the stars are aligned. I remember very distinctly a theory of European integration, neo-functionalism, according to which Europe was moving towards deeper integration through every crisis it faced.
The usual criticism is that, as a rule, every crisis is accompanied by a response that is not optimal. This has worked in some cases and less effectively in others. But overall, through every crisis we have faced, we have been able to strengthen our institutions and deepen European integration.
Today we are at a critical crossroads.We face multiple emerging crises and many open issues, but at the same time we have around the table leaders who genuinely want to see concrete progress. Because they understand that any delay comes at a cost. And, most importantly, that the opportunity cost of inaction has now become absolutely tangible and visible.
For his part, Enrico Letta, focusing on the need to complete the Savings and Investment Union (SIU), explained that “the key point is that when we are discussing these issues and trying to push forward the Savings and Investment Union, the sense of scale is not easy.The very simple problem we face is that the sense of that dimension today is completely different from the approach we have.
Because in Europe we like small projects. We are small countries. We are full of small towns. We are the kingdom of small and medium-sized enterprises. And I am very happy that my country is the kingdom of small and medium-sized enterprises. And I’ve always lived in small towns. And I really like this small scale. That’s the main problem. The fact that the world has completely changed in terms of scale. And we, as Europeans, have not moved forward in the integration of our financial markets.”
In another point, the former prime minister of Italy, stressed the following: “Today we are retreating because of a lack of scale. And this lack of scale is absolutely fundamental. We are dependent on American technology. We are dependent on American funding. We were dependent on Russian energy. We depend – and continue to depend – on Chinese manufacturing.”
And he added: “independence, in today’s world, means the ability to gain the necessary scale. It means joining the small with the big. If we can do that, we can succeed. And we have to start with finance.”
“If you had asked me three months ago, I might have been less optimistic. But today, I see the path clearly. I have spoken to the Irish presidency. The Irish presidency for the next six months is absolutely determined to continue and accelerate in this direction. There is, therefore, a sense that momentum is building. And it is precisely this momentum that we are already seeing in practice. Of course, we can squander this momentum. But we must not lose this moment.
There is no alternative plan. If we miss this opportunity, I believe we may be able to regain lost ground later. But at this moment we have a great opportunity in front of us”, E. Letta also underlined.
Especially mentioning the President of the Eurogroup Kyriakos Pierrakakis, E. Letta spoke in very positive terms about his assumption of office. As he said, “I am very happy to be here with Kyriakos, because I feel that I am next to someone who is writing European history. By trying to call a spade a spade, he manages to make a difference.”
