How to revive Europe’s economy and unlock its potential

Sir Simon Fraser GCMG

So, I think we’re good to start. Ladies and gentlemen, welcome. I see it’s standing room only. I hope you’re reasonably comfortable standing at the back. There are – there may be one or two chairs available further forward, but let’s start. So, I’m Simon Fraser, I’m the Chair of the Council here at Chatham House. I apologise to anybody who was here last night and saw me on another panel. You’re getting maybe an overdose of me, but here we are. I’m very pleased to be chairing this panel discussion this evening, and as you know, the title of our discussion is, “How to Revive Europe’s Economy and Unlock its Potential.”

Just a few brief housekeeping announcements before we start. So, this discussion is on the record. It’s not under the Chatham House Rule. It is being livestreamed and therefore you are welcome, please, if you want to use X to post on X or tweet, please do, and there’s a #CH_Events or @ChathamHouse. Please feel free to do that. We’re going to have a discussion in the panel for about half an hour and then I’ll open it up to questions from the floor. If you are in the room, please put your hand up and somebody will bring you a mic, and please do introduce yourself when you ask your question. There are also questions I hope will be coming in from those who are observing us online, so I’ll try and moderate those, as well.

So, I’m very pleased to be joined by an outstanding panel to discuss this, and of course, our principal discussant is on my left, Enrico Letta, currently President of the Institut Jaques Delors, but of course, formerly Prime Minister of Italy from 2013 to 2014. Also, National Secretary of the Democratic Party in Italy, previously Dean of Sciences Po. He has had many, many distinguished roles in politics and in academia, and of course, most recently and relevant, of course, primary to our discussion today, was invited by the Council of Ministers at the European Council to prepare a report. The report is called “More than a Market,” about the future of the single market in Europe and our competitiveness, and I’m going to invite Enrico in a minute to lead off our discussion.

But next to him is Vicky Pryce, who is Chief Economic Advisor at the Centre for Economics and Business Research and a Visiting Professor at King’s College London. Vicky has had a range of important positions, as well, and was Chief Economist in the Business Department here in London at one stage, where I had the privilege of working with her. And then at the end of the line, Sébastian Maillard, who’s an Associate Fellow here at the Europe Programme at Chatham House. A Special Advisor to the Jacques Delors Institut, but I think you were previously Director of the Jaques Delors Institut, and he has, as well as that, had a career in journalism and has collaborated with Enrico on at least one book, possibly two. So, they are partners in crime, going back some way.

So that is the panel, and I’m going to invite Enrico now, if you would, kindly to kick us off with a short presentation of your perception of the issues relating to competitiveness in Europe and the single market and the main thoughts that are in your report that you have presented to the Council and which is now forming part of the work of the Council and Commissioners, as we begin the creation of a new cycle, or the political cycle with a new Commission in Brussels. Enrico, over to you.

Dr Enrico Letta

Thank you, thank you Simon. Thank you so much for the invitation. Being here, for me, it’s a privilege. I had, for the preparation of this report, a journey around Europe, I visited all the member states, nine months’ journey, 65 cities, more than 400 meetings, stakeholders, entrepreneurs, students. It was fantastic for me, this kind of preparation of the report. I understood in the preparation of the report and then in the presentation of the report, because the report was presented at a European Council meeting in April, I had one very important first outcome of this exercise, that is the lack of ourness within the European Union. Of the fact that in reality, even if we have the same currency in our wallets, the economic integration is half a success, half an unsuccess. For a very simple reason, because we decided for political reasons not to integrate the three sectors that are, in my view today, crucial for competitiveness.

And the three main sectors are telecom, energy and financial services. If you give a look to the three, all the protagonists of the economic world, they have to deal with national authorities, not with the European one. We have the single currency, we have the European Central Bank, but on financial services, the deal is with then 27 national authorities. On energy, the deal is with 27 authorities, and same on telecom. The consequence of that is the fact that on these three sectors, we thought, 40 years ago when the single market was created, that the national dimension was enough, how we say? High and big, to be competitive, because at that time the big European countries were so big to be at the same level of China and India together. I always remind to myself that Italy, France, we were countries where our dimension was the same of China and India together. And of course, today, we laugh on that. Today China and India together are 25% of the world GDP, but at that time, the big European countries were big enough to be competitive alone.

And this is why, on these three topics, we are today still so fragmented. The fragmentation is today creating a paradox that is the starting point of the entire exercise, because the fact that we are not integrated is not just a lack of opportunities. The fact that we are not integrated is an enormous gift to Wall Street, to the Chinese, to the Indians, to the American industry. And I worked in the report to try to convince decisionmakers, Politicians, audience, normal and general audiences, that more integration is not needed for ideological, federalistic reasons, but it is the only way to survive in a world where China, India, the US, are so big and so united that if we are not united, as well, it would be impossible to survive.

There are so many examples. I want just to take the most, how we say, interesting ones. On financial services, we, the Europeans, we are, I think, very, very strange and very particular. We, the Italians, we will never pay digital payments with a French digital payment system. The French will never accept to pay with a German digital payment system. The Germans, they will never accept to pay with a Spanish digital – and we are all so happy to pay all with American digital payment systems. In our wallets, we have only American credit cards, only American credit cards. And every day, daily, what we do daily is tonnes of digital payments by American credit cards. It’s a question not only of fees, because there are agreements with the banks, so it’s problem is not the fees, the problem is the power and the, how we say, the ownership of data. That is a very simple example.

I can give you a second example. The fragmentation of the financial market is bringing, following what the ECB is calculating, €300 billion, it’s huge, €300 billion per year, of European savings crossing the Atlantic, because the Atlan – the financial market in the US is more attractive because it is bigger, unique. Just to have in mind that NASDAQ alone is as big as all the European stock exchanges together twice. And of course, our savings are going there, and they are transformed in shares, strengthening American companies that fly back in Europe, buying the European companies with European money. That is a little bit paradoxical too.

I can continue with defence. The lack of integration in defence is bringing us, be very generous in jobs creation in the US, in South Korea, in Turkey. We spend to help Ukraine €140 billion, and I want to be very clear, it was the right decision and we have to continue. But the key point is that the fragmentation of 27 different systems in Europe brought the European leaders to use 80, eight zero, % of this €140 billion to buy non-European military [inaudible – 13:17]. So – with European taxpayers’ money to buy, to create jobs in other part of the world. That is not the case of the US. 88% of what they spend in defence is to create jobs in the US.

So, just this example, and I stop here immediately, Simon, just to say that I’m not talking about the dream of a federalist. I am a federalist. I would like to have a more integrated Europe. But I think today, and this is what I said to the 27 leaders, even to the sovereignist leaders, telling them, no matter you think it’s better to be sovereignist, nationalist or Europeanist, in the world of today, if we are not integrated, we will lost competitiveness, growth and we will send our jobs out of Europe. And this is what is happening today. All the figures are showing that Europe is lagging behind the US. We are in a risky moment. This is why my report, and in Draghi’s report, i.e. we worked in parallel, the two reports. Mine was tasked by the European Council principally – reports – Draghi’s report was tasked by the Euro – the President of the European Commission. Both, we tried to say, “Hey, red alarm.”

We have now five years’ time in this legislature. I end up with a note of optimism, by saying that von der Leyen decided to take all the solutions that I put in the report and Draghi put in his report, and to put these solutions in the speech that she gave at the European Parliament to get the confidence vote. But first of all, and it is the most important part, she put these solutions in the roadmaps that she gave to the Commissioners and the Commissioners are today, and in these days, discussing at the European Parliament. That means that maybe we can escape our, how we say, worst enemy.

You know that when we – when one writes a report, it has a big enemy. And the big enemy of all the reports is the drawer, because usually, all the reports end up their life in a drawer and we have to avoid – this is my big job, is to avoid the drawer and to be able to land somewhere. Because if we are not able to create this ourness and to have the solutions landing and being operational, I think it would be very complicated for Europe to reverse its strength and to relaunch. And to relaunch the only way is to find inside ourself the reasons.

As you’ll see, I didn’t mention the UK, but I’m ready to mention the UK, because I remember always what Jacques Delors told me once. He told me the single market was the most important achievement, “but I did it as pro-European leader, the most pro-European leader, with an alliance with the most anti-European leader” that was in the European Council at that time, “Margaret Thatcher.” So, the role of the UK was decisive in creating the single market and I have to say, we are missing the UK within the single market. The single market today is in difficulty, also because of that.

Sir Simon Fraser GCMG

Thank you, Enrico. Look, I think we’ll come back to the UK a little bit later on, and look, I’ll ask Sébastien in a minute to talk about what’s actually been happening in terms of taking up the report. But Vicky, before we do that, I mean, the whole question of European competitiveness is a very big one at the moment, and there are strengths in the European economy. But there are clearly perceived weaknesses around innovation, scaling innovation, generating private investment, for example, some of the things, or many of these things that have come up in the reports. I mean – and you could say, and Enrico’s prescription is what you might expect, which is more integration as the solution to European competitiveness. I mean, is that the right prescription, and how realistic is it, do you think, that we’re going to be able to actually make a difference?

Vicky Pryce

Well, I have to confess that I worked on the original Cecchini or Cecini, Cecchini? How do you put it?

Dr Enrico Letta

Cecchini.

Vicky Pryce

Cecchini report, back in…

Dr Enrico Letta

[Inaudible – 17:55] report.

Vicky Pryce

Yeah, well, when I was working for KPMG and we did the professional services one, PwC, if I remember, did financial services and so on. And then we put the entire report together showing the benefits. Of course, it was called ‘The Cost of Non-Europe,’ so basically, what you were missing out by not having an integrated market. I mean, there was no doubt in the benefits that you could get, both in terms of static benefit by just getting things, you know, to work better in terms of any – everything moving across more easily, regulations being similar, of course, and prices coming down. And also, for the consumer, because of all the positive things that you have of bigger market, economies of scale. And then, of course the dynamic impact on productivity that you get as a result of this integration, and we saw a certain amount of that, in fact, happen.

But of course, when you’re talking about Europe, I mean, the one point that I would make is that the concept is a bit fungible, because you’ve got the euro members, of which the country I come from, of course, suffered hugely during the eurozone crisis, Greece, and yours, up to a point. And then you’ve got the wider Europe, of course, the 27 that you mentioned. Then you’ve got loads of others. So I’m saying it’s fungible, because we were discussing before what we’re doing after this meeting and my team, Chelsea, well, I’m going to watch them play Armenia, a team in Arm – from Armenia, and our next trip is to Kazakhstan. So Europe, this is Europe as we define it.

So, we’re talking about, you know, integrating quite a big area, where of course, there are all these geopolitical things intervening right this minute. Whether it’s in Moldova, which is quite interesting, whether it’s in the western Balkans and of course Ukraine, as we know full well, which may, indeed, one day join the EU. So, what you’ve got, therefore, is integration of a wider number of quite diverse countries, and as you rightly said, we haven’t really achieved that reduction in the difference in GDP per head that we had hoped we would. In fact, if anything, after the eurozone crisis, it had widened. And in some ways, you know, with COVID and everything, it has not come back to what we’d like to see it happen. So there are differences there, first of all. So you’re talking about quite a lot of differentials that exist.

The second thing is, of course, you’ve got those which are members of the euro, where there’s a different type of relationship there, and what do you do with the rest who are not? Do they all have to, perhaps, become members? And the third point is that they still have – countries have their own decisions on tax. If you’re talking about having a capital markets union or a savings and financial union, which I think investment…

Sir Simon Fraser GCMG

So, you’ve – firstly, you have to say what kind of investment is…

Vicky Pryce

Forgive me, because we were discussing that earlier and of course Draghi still talks about a capital markets union, which we all thought was a very good idea. You have different pension arrangements, and the tax system affects those pension arrangements very significantly. You hardly are able to transfer pensions from one country to another when you move, even though we have freedom of movement. And of course, if you were able to put all these pension funds together, then you would have a much more important capital market or savings market and investment market, which would then be able to support the growth of the economy of the way that we would like to see. The way in which the US is able to do.

And of course, in the UK, if I may touch on it, we are beginning to talk, even though we have quite a strong pensions industry, of leveraging more out of it by putting loads of local authority pension funds together. I mean, there is such distribution of the way in which different differentials in the way in which pensions are managed and the funds are managed. In Europe, that – you have to overcome that to get the type of union that you want.

So, there all these difficulties, and I’m not even touching on the political ones. So, we’ve mentioned technology, digital, energy. The difference in the energy views of different countries which are actually members of the EU, let alone those which are members of the euro, is really very significant. And to overcome that, of course, requires, I don’t know, persuasion, bribing? I don’t quite know what. But as far as I can see, in many ways because of the Russian crisis, we have actually moved further away.

Now, these are all the negatives. The positives, quickly.

Sir Simon Fraser GCMG

Not too long though, because we’ve got to move on.

Vicky Pryce

Fine, alright, just Trump.

Sir Simon Fraser GCMG

Yeah.

Vicky Pryce

I will just mention that, because that clearly, will act as a spur for greater integration. I think if we really wanted your report to be materialising something, then perhaps the elections – the result of the elections in the US are really what we wanted.

Sir Simon Fraser GCMG

Well, thank you, I mean…

Vicky Pryce

What we needed, not what we wanted, I’m afraid.

Sir Simon Fraser GCMG

And, I mean, there are many – we’ll come back to these issues because there are political obstacles in terms of some of the things that you’re proposing, specifically for example in terms of, sort of, collective bonds and debt in the union, but before – so let’s come back. Let’s come to Sébastien. I mean, the European Council is meeting tomorrow. Your report is going to the European Council. The European Commission – the new Commissioners are having their hearings with the European Parliament now, so it’s about to start. Can you describe how Enrico’s report is being picked up and also the Draghi report, and what you expect to happen in terms of implementation?

Sébastien Maillard

Yeah, thank you. Well it’s true that – I understand Enrico’s fear that, you know, a report ends up in drawers. As a former Journalist, I’ve read many reports and they do end up there, but I think this time it’s a bit different because although we’re talking about both Letta and Draghi reports are lengthy and a bit technical and basically, economic, they are truly political initiatives, and very timely ones. And what impressed that, when you look at not only von der Leyen’s speech in July, but also in the naming of the portfolios in the mission letters she sends, and when you listen to the hearings ongoing at the European Parliament, it’s all about what’s in the report. I mean – and if you read the Budapest Declaration that the leaders are supposed to endorse tomorrow, many of the wordings are – come directly from the report, whether it’s the 28th regime you may come back to about corporate law, or the fifth freedom about innovation and research, about the Savings and Investments Union, it’s all there. It’s also in the – and the new Commissioner for Finance will be in charge of that.

So there is something happening there, and I think we have to watch it and perhaps, yes, the Trump momentum can also give a greater impetus to this – to the report. But I’m glad that because when we have such a shock of this election, we have this political compass, which are both reports for the Europeans. Because it gives a unified expression of the common problems we face that are also mirrored in the anxiety and doubts that fuel populism in our societies. And the reports are really political in that sense and can go very deeply at the very root of what fuel populism, if we have the political will to do all that, because it’s a tall order.

And I would just emphasize on two aspects quickly that can – that are to watching the Declaration, if they – if it’s – might’ve been – when it will legislate, perhaps starting on the 1st of December. One is on the Savings and Investment Union, because for once, I know France and Germany disagree on many things, but on – now, on this, since March or April, they decided to – it needs to get going. I know Luxembourg is perhaps one obstacle, but I mean, it’s – there is more momentum, and by the way, let’s not forget it was at first a British idea. But it’s something that can be moving on, because yes, there is a desperate need for fresh money. Germany doesn’t want any joint borrowing, so that won’t happen, and I’m not sure the future Chancellor will do any – will favour that. But to raise private money through the so-called CMU here, it can be a way. There are lots of things to do about sovereigncy [means sovereignty] law, about joint provision, about fiscal harmonisation. I mean, it’s – there are many hurdles to – and obstacles, but I mean, this idea is coming up.

And also, to end on this, the single market was until then, very much consumer oriented, and in both Enrico’s report and the Draghi report, it’s more – it tries for a more producer oriented industrial policy. And when you look in the Budapest Declaration, the word ‘industry’ comes eight times, where it’s all about defence industry, semiconductors, pharmaceuticals, transport, what have you. I mean, there, of course, is also lots of – to raise money. But now, I think it’s this – there is the awareness raised by these reports, maybe we’re getting there a bit. And so, I mean, it gave me a bit some hope that this drawer entity will not materialise too soon.

Sir Simon Fraser GCMG

Escape the fate of the drawer.

Sébastien Maillard

Well, that might be just hype, which is another…

Sir Simon Fraser GCMG

Oh, it’s yeah – yeah.

Sébastien Maillard

Yeah.

Sir Simon Fraser GCMG

So, Enrico, can I come back to you? I mean, and it will be very interesting to hear your – actually on two things, if I may. First of all, I mean, so Vicky has highlighted some of the complexities in Europe and divergencies, and it would be good to have your observation on that. And also, actually, do you see the Trump election as a stimulus to integration, or potentially a risk of the opposite tendency in – amongst member states of the European Union as they seek their – some of them may seek to position themselves with Washington on a national basis?

And then secondly, I mean, I – may be unfair to ask you this, but since we’re here, I think your observations on how you see the British position, which might lead us to comment on where the British Government is in relation to the evolution of EU policy and the famous reset of our policy, would be interesting, as well.

Dr Enrico Letta

Our first point, so, about what Vicky just said, it is true that there are big differences, but it is true, too, that we have the same currency. I want to say that, because it could have been, for me, absolutely impossible to bet 30 years ago, to say, “We will have the same currency.” Today we have the same currency, and at the beginning of this, I would say, trajectory, the consensus was not so big. Today, 75% of the European citizens are happy because of the euro. After years and years of battles, struggles, today we understood that the euro is a protection, is an umbrella. There’s no nostalgia for lira, pesetas, drachmas, it’s over, definitely over. That is, for me, a very important point to show that it is the demonstration that being together in this bigger world, it’s something that people are understanding is a way to be protected.

Of course, it depends, the way in which we are able to do so, but for instance, energy, telecom – on telecom, we are in a world in which, today, the fragmentation. We are 27 markets in Europe, not one. That means that we have 80 operators in Europe. As consumers, we are happy, of course, we have lower prices and good services, but everything is American or Chinese. In the 80s, in the 90s, all the technologies in the telecommunication system were European technologies, even GSM was European. Today you’ve got 5G…

Sir Simon Fraser GCMG

So, that looks like they’re more innovative in technological development than we are.

Dr Enrico Letta

That’s why they are. For instance, on artificial intelligence, it is not because they are more intelligent than us, because they have more money. So, European Researchers are there to develop in their market because they have plenty of money. We don’t, because our financial market is so fragmented, and this is, in my view, the key point. Of course, there are other aspects. We, in Europe, in continental Europe, we still have this risk aversion that is culturally something that is very negative, and we have to try to change.

But I come back to your second point that is interesting, because I took advantage of my presence here today to have, also, some political meetings and some meetings with UK authorities to try to say that there are some topics where it is not a problem of, how we say, UK resetting or new single market topic. We know, we understood, huh, yeah, that’s clear, well received. But the key point is that there are today two issues, and the two issues are geopolitical issues. First, the war, Russia, the defence and security needs, and I think we have to reopen discussions among us, and the most important part is the defence industry. This is why in my report I put the proposal of creating a common market on defence. That is, in my view, a good idea for the UK.

Sir Simon Fraser GCMG

Is it one the UK could participate in?

Dr Enrico Letta

Yes, of course. It is not a single market. It’s a common market on defence.

Sir Simon Fraser GCMG

So there wouldn’t be procurement rules which would exclude non…?

Dr Enrico Letta

Again, you know defence is something that is totally different from the rest, because defence is a captive market. It’s not a normal market. So I put it on the table, I think it can be a way to reopen channel of communications on something that is useful for all, for the UK and for the European Union. But the other point is Trump, you mentioned Trump, and it is clear that Trump would put pressure, both on the UA – the UK and on the European Union. So, I don’t know what would be the reaction here, but it is clear that on some issues we have to talk together and it is, I think, in common interest.

I would like just to end up on what Sébastien just said, because the idea of the 28th virtual state – I use ‘virtual state’, I prefer than ‘regime’. I don’t like the term ‘regime’. The 28th virtual state, is – it gives you the idea on the method I used in my report. One of the reasons why the SMEs, that are 90% of the European economic, are not taking advantage of the single market is because of the complexity of rules. We have 27 corporate laws, and for some countries, Spain, for instance has 17 regional corporate laws. So, for investors from abroad and for SMEs, the complexity in terms of rules is the big obstacles – is a big obstacle, and they, maybe sometime, they decide to invest in another part of the world because of that.

So I know very well, and this is a method I used in the entire report, that opening the Pandora box of treaty changes would be a disaster for the entire exercise. So, I decided to say, clearly, “My report is feasible in all the solutions with the present treaties, without any treaty change.” And to be more, I would say, concrete on that, on corporate laws, I decided not to propose to say, “Okay, we move from 27 to one. We cancel the 27 corporate laws and the regional corporate laws in Spain or the other – in Germany and so on.” No, because I know very well that it would be impossible to cancel corporate laws that are 200 years of history.

But the proposal is to create the 28th virtual state. It’s a, sort of, Delaware of European – Delaware, but not physical, but virtual, with its own corporate law. And an SME or an investor from abroad can use and can take this corporate law, the corporate law of the 28th virtual state. And this one can be a sort of passport tool that allows you to enter into all the member states without having the night – today’s nightmare to change corporate law from Portugal to Spain, from Slovenia to Croatia and so on. That is the way in which we are not pushed to invest in the entire – and to take advantage of the entire – this idea is a very pragmatic one.

And when I tried to sell this idea to the leaders, I had a very interesting positive reaction, also, from sovereignist leaders, because they told me it’s a good idea, because I – it’s not a problem for me to open the discussion, is it better to have the European one or the national one? I give companies the option, and companies will choose the one that they would prefer, and it is clear that the passport tool will be very interesting, and it would be the way to accelerate and to leverage.

So, just to tell you, we need ideas like that, because if we go to a, how we say, a frontal conflict between pro-European and pro-national flag, it would be a disaster. We need to go in the direction of what is more efficient for growth, for jobs, no matter which ideology is behind that? If we go in that direction, it is a – I think it would be – it could be a good success for the European Union.

Sir Simon Fraser GCMG

Very good. Well, we may probe you a little bit later on your political discussions here in London, but meanwhile, I want to open the discussion up to questions. I’ve got one online that I want to ask, but I see already a couple of people. So, I’ll take two in the room and then I’ll come to the one online. Could you please show your hands? There’s a lady there to the back. Now, I think a mike is coming, yes, in the back row. And then maybe that gentleman over there after this. Can we take two at a time and then we’ll…?

Annabel

Hello, thank you for the talk, my name is Annabel. My question is to the viability of the future of European manufacturing. I see that the – your report really touches on the need for grid reliability and energy, and I’m wondering what relationship you see, if there is one, to improvements in the grid and improvements in green energy, to the future of European manufacturing. Thank you.

Sir Simon Fraser GCMG

Okay, that’s – and then the gentleman here, second row from the back. If you’d like to put your hand up, yeah. Thank you. Could you introduce, yourself please?

Ivan

Hi, my name is Ivan. I’m from Rogers Group. I would like to ask the gentleman, Enrico, clearly you are not happy with Bretton Woods evolution. Can you tell us – I mean, you are not happy even with the BRICS, hopefully, what they do with financially. Can you tell us where you see European Union closer to Bretton Woods or closer to BRICS?

Sir Simon Fraser GCMG

That’s a good question. The question online, actually, is very similar to yours, so I’ll just raise it from online. And the question that was online was also about the cost of energy and the cost of the green transition and the impact that has on competitiveness of manufacturing in Europe. So, I think perhaps we can take these two, and then I’ll come to the contributions to the others.

Dr Enrico Letta

I start with your question by saying that Europe has to be aware of the fact that today the BRICS are protagonists at the world level, and we have to open a dialogue with them. Of course, not with all them, because among the BRICS, there’s an air. But with the rest of the BRICS, I think we have to open – and for instance, that means we have to be more open on foreign trade. I think we were in the last years too protectionistic in Europe, within the European Union, considering that the internal voices are more important than the external gains. We have to be more open on foreign trade and this is for me – and I put it in the report, and for me, it’s crucial. On energy and on…

Sir Simon Fraser GCMG

Industrial…

Dr Enrico Letta

…on your question there, and also on the green transition. I give you just one example of why I put energy among the three main topics. We have a wise – the, the – how we say, the wave of the energy, the solar installed in Europe, rather than the US, so on. Two times in Europe, in – on solar, in comparison with the US. But the outcome in terms of energy is the same, one/one. Why? Because we don’t have enough interconnections within Europe. So, your point about grid is fundamental. Why we don’t have enough interconnections? Solar is the demonstration. We have more investments in solar in Europe in the places where the sun is not there, usually. That works only if we have a solar connection, interconnections, but if the interconnections are not there, it’s very complicated to have all this power installed in the North and being able to – so the problem of interconnection is a crucial one in Europe.

We have an article of the treaty guaranteeing the energy mix. That is clear, so energy is a place where some part of fragmentation will stay. The problem is that with interconnections and with open doors, we can maximise all of the different energy sources, and that can be a great success. This is the – my good point on energy, on the green transition.

Sir Simon Fraser GCMG

Yeah.

Dr Enrico Letta

This is the political core of my report, because I try – the discussion we had before on Savings and Investments Union instead of Capital Markets Union – is for a very simple reason. We didn’t integrate the financial services for many reasons. First reason was because of Brexit. We launched the Capital Markets Union in ’14. It was a great idea, but the great idea had also the idea to have London as financial capital. It was the way, I think Denis knows better than I do, all the negotiations and that, but it – the idea was to give London the place of capital of Europe, and it would have been a great success. Brexit, no more London, but the same Capital Markets Union with the idea to substitute London. And we know very well that there’s not another London within the European Union.

So, the Capital Markets Union was a failure, also, because of that, but also because another, for me, very important reason. It’s impossible today for political leaders, no matter they come from the left or from the right, to go to the – to rallies, meeting voters and telling voters, “I promise you I give you the capital markets unions.” The reaction is, of course, the reaction thinking that, “Okay, it’s not for me, it’s for bankers,” and that’s the point why I say we have to change totally the discourse. Because the integration of financial markets is to create a bigger financial market able to direct private investments to common goods. That is the key point. And the transition is the most important one. Why private investments for the transition? For a very simple reason, we – you mentioned before, because half of the European member states, they don’t want to share a fiscal capacity at the European level and European debt, for reasons that we know very well.

I was yesterday with Friedrich Merz in Berlin, we presented the report there, and I understood the point. But for instance, Merz was very much interested on this point on private money. It’s the only way to unblock some public money and at the same time, to have the answer to the question, is it possible to have the transition without accompanying the transition socially and economically? My answer is no. It is very clear, and the vote in the US is the demonstration of that. If we, and when I say ‘we’, I say supporters of the transition, of the green transition, if we present the transition only as something that is a, sort of, luxury for the wealthy people, the transition would be a backlash, it will be a failure.

We need to give the possibility to all Farmers, householders, workers in the automative industry, to think that the transition will be good for them. It is not transforming their life in a nightmare, losing jobs, losing the value of their houses and so on. This is why the plan accompanying the transition, with private money and with unblocking some public money, is in my view, essential, and my report is giving the leaders a tool that can put together the frugals of the North and the Southerns.

Sir Simon Fraser GCMG

Vicky, can I come to you on the back of that, because one of – there’s a question online here which, I mean, is linked to that, which is about regulation. And it is the perennial British comment, which is, you know, regulation is too heavy and is killing innovation in the European Union. And there’s a reference in particular to AI and the AI Act, but also to the regulation around energy transition. I mean, what’s your – do you think that that is still a, sort of, outstanding obstacle?

Vicky Pryce

I think it is and also, the fact that the regulations are quite different. Again, you’re looking at different countries on energy right now, and there is this big, big disagreement about energy transition, how fast it should go, as we’ve seen. And of course, we now have Trump, who doesn’t even believe in this energy transition. So the interesting thing for me is all these things are absolutely essential to happen, but in the process, just thinking about the question about manufacturing, we may have lost a lot of our competitiveness before we get to that point. ‘Cause manufacturing output is declining, we’ve seen it negative for quite some time. Energy costs in Europe – we absolutely do need these interconnections across – are considerably higher than they are in the US. So, there is increasing protectionism, so our exports are going to be, themselves, possibly subject to tariffs.

So what do you do? I mean, the real issue is, by the time we get our act together in this area, we may actually have lost huge amounts of our industry anyway, in terms of it being competitive in the longer term, and I think that’s the real problem. Can you achieve anything more by reducing regulations, the way, again, that Trump wants to do? I’m not sure they’re going to work fast enough. There needs to be something more that needs to happen now to encourage industry to restructure, in a way. Because we’ve seen what’s going on in Germany where, you know, it – there’s been a recession at various stages, where industrial output had declined. It’s just about starting to improve again. You’ve seen the car manufacturing sector in dire difficulties, shedding labour, not able to compete, and it’s going to become much more protectionist.

So, just think about the UK and the discussions you were having yourself politically, for me, the only solution is to get back to considerable closer working. You may not call it rejoining the single market for the time being, and support the rest of Europe, as well, but also because we will not be strategically competitive at all in a few years’ time, so – unless something happens, and I do entirely agree with your report.

Sir Simon Fraser GCMG

I was going to put that question to Sébastien, is it too late? Because, you know, it may not be in the drawer, but is it useful on the desk? I mean…

Sébastien Maillard

A lot of the competitiveness has gone elsewhere and what’s happening with the automotive industry in Germany, with plants closing in Volkswagen, it’s very telling. But there – I mean, the industry is not finished. I mean, there is cleantech, there are many new innovations coming up, and there is a great need to – for clean – I mean, the Clean Energy Act will be important, and all the industrial plan for that is important.

But to come back on the – quickly on the question of the networks there. I think it’s not just an EU question, it’s a question for the whole continent, and goes way beyond the – just the EU. And actually the European political community that was gathering today talks about those issues about interconnecting beyond the EU, and I think it’s a question, also, for all the windfarms in the North Sea.

And about trade, if we’re going to have a trade war with the US, which could quickly happen, of course, the Commission is going to have tit-for-tat measures, and we talked about the medium/long-term industrial policy. But yes, we will need more trade deals, which I’m sure there is going to be much more pressure again on France to accept the Mercosur deal, which is being negotiated in these – ongoing, and there are key meetings coming up. Because yes, we need to – and even reviewing the TCA in the context of this trade war, we’ll see how far it can go.

Sir Simon Fraser GCMG

Hmmm hmm. I remember when I went to work in the European Commission for the second time in 2004, the first meeting I went to in 2004 was a Mercosur negotiation, trade negotiation, so don’t hold your breath.

Questions, a lady in the front row and then, a gentleman sitting behind.

Professor Ruth Chaplin

I’m Professor Ruth Chaplin, and one of the areas I saw that Europe was integrating very well on was the push against the domination and the anti-competitive behaviour and unfair competition of the tech giants. And Vestager – Mrs Vestager and Mr Thierry Breton, they both worked very closely and very effectively and efficiently to combat that, kind of, how do I put this politely? Kind of, American…

Sir Simon Fraser GCMG

Market invasion.

Professor Ruth Chaplin

American…

Sir Simon Fraser GCMG

Right. So, is there a question, please? Can we get to the question?

Professor Ruth Chaplain

Yeah, the question is, basically, is how is this going to be reinstituted and what kind of a threat…

Sir Simon Fraser GCMG

Okay.

Professor Ruth Chaplain

…with the new regime or administration in America, which will deregulate and undermine a lot of the good regulation that was united with Europe?

Sir Simon Fraser GCMG

Okay, thanks. There’s some questions online that are in line with that, so I’ll come back to them in a sec, but the gentleman behind? So, this is about how does Europe protect itself from what you might consider unfair competition, but…

Ricardo

President, buona sera, Ricardo [inaudible – 51:07] of Italy. Sorry for the scarf, but Chatham House has decided to test our physical resistance.

Sir Simon Fraser GCMG

It’s very cold in here.

Ricardo

…tonight. One of the many interesting point that you raised in your report is the importance for companies to scale up, expand their dimension in order to better face competition. But in the last couple of months, we’ve been witnessing, for example, Germany’s fierce opposition to a possible takeover by an Italian bank, UniCredit, on a German bank, Commerzbank. What is your assessment on that, and how do you see this operation?

Sir Simon Fraser GCMG

Okay, so can I just add in the question here about, sort of, how is Europe going to protect itself in certain sectors? You mentioned the tech sector, that is very important, and it links also to a question online, which is how is the – “With Donald Trump being elected, the whole debate about strategic autonomy is back on the table, and it’s not just about defence, it’s about strategic economic interests. So, is that actually going to be an inhibitor to growth and – in Europe, or can it be harnessed in an effective way, given the sort of challenges that we’re facing?”

Dr Enrico Letta

You know, the reason why I decided to focus the three topics that I mentioned at the beginning, so telecom, energy and financial services, is first of all, because they are the three that are not integrated enough, but the second is because the three are the way to define security today. Because security today is, yes, military, is defence, is weapons, but security is also energy independence, security is strong and proper financial services and security is connectivity. So, if we are good on these three, and big enough on these three, we are in a security mode. Otherwise, we are, and this is the main slogan that I use, otherwise we can in the next years, decide whether we are an American colony or a Chinese colony. The debate within the European Union will be on this topic.

So, my big point is that we need all that, to be able, come back to your point, to be able, first of all to be proud, also, of our legislation. I say that because all this discourse about deregulation, regulation, very well, we are too complex and so on. But I prefer our way to regulate, for instance, big tech, than the American way, and I think we have to be – how we say, on that we have to follow at this point. I ask…

Sir Simon Fraser GCMG

Elon Musk is not going to be very happy with this.

Dr Enrico Letta

Yes, I know, I know, and I’m a little bit worried about what will – but if I may say, just in a very – in a slogan, in the world there are three different ways to tackle these topics. The main topic is who is the owner of data, the data protection? And there are, at the end of the day, three big approaches. The American one is the market, at the end of the day, the true owner. Is the reputation of a company in the market that is the way in which they respect your – in China, it is the state, at the end of the day, the state is the true owner. We in Europe, and I think it is a common approach, we think it’s the person, the owner. It’s not the market, it’s not the state, and it has consequences. So, I think we have to be proud and we have to work on that.

And on the point on mergers, first of all I think I use this exercise and what I am doing everywhere in Europe – yesterday I was in Berlin, tomorrow I will be in Porto – is to please stop – and thank you because you didn’t – stop using the term ‘cross-border’. It is not a cross-border merger because there are no more borders within the European Union. And Commerzbank and UniCredit, it’s not a cross-border merger. It’s a merger between two banks, European banks. Of course, I was some days ago in Spain, and they were discussing about a Basque bank buying a Catalan bank.

Sir Simon Fraser GCMG

No, you’re right.

Dr Enrico Letta

You can imagine.

Sir Simon Fraser GCMG

It’s a reality of the single market.

Dr Enrico Letta

Yeah, but the key point is that all these mergers, they have to be considered in terms of efficiency, efficiency for the consumer, efficiency for the system, and this is what I said yesterday to Merz and to the German audience. UniCredit is a – it’s a European bank, it’s not an Italian bank. It’s a big European bank with 14 or 15 different subsidiaries in all the eastern central European Union. So, it is absolutely natural that they discuss, and if the deal is feasible, they have the deal without any discussion.

But the key point, sorry if I take one minute on that, but maybe it’s the most important part of the entire discourse, is that for political reasons, the big European member states, they don’t want to give the green light to mergers among the incumbent in the three sectors I mentioned. In the last 20 years, you didn’t have any merger among the incumbents. Why? Because each government wants to have his own tools, his own incumbent in energy, his own incumbent in telecom, his own incumbent in the banking system, in the financial services. Because the idea is that always the sovereignty and because each Prime Minister, Simon…

Sir Simon Fraser GCMG

Yeah.

Dr Enrico Letta

…you know what I mean, wants to go every year, to China, with a plane full of the CEOs of the big tools of the national – with the national flag. So, each government wants to have the CEO of the incumbent with a telephone number with the plus…

Sir Simon Fraser GCMG

So, it comes down to political will in the end, sort of…

Dr Enrico Letta

On this, yes, it is only a question of political – this is why your point about Commerzbank and UniCredit is fundamental, because that can the déclic. If there’s a déclic on that, then…

Sir Simon Fraser GCMG

I know Vicky wants to come in, but we’ve got five minutes left, so Vicky, very quickly.

Vicky Pryce

No, I was going to…

Sir Simon Fraser GCMG

I want to take a couple more questions and then I’ll ask everybody to make a comment, yeah.

Vicky Pryce

I think you were only asking simply because the Draghi report…

Sir Simon Fraser GCMG

Yeah.

Vicky Pryce

…the competitiveness report, is actually suggesting that from the centre, firms should be – countries should be forcing or being forced to allow their companies to merge across, so that you have big champions, European champions. Is that at all feasible?

Dr Enrico Letta

It is feasible if this is not against the consumer. And for instance, on telecom, that is the topic where the consolidation is an absolute necessity, the key point is that we have to move from 27 markets to one market. There are no reasons to have +33, +34, +39, +49. I’m sorry for the +44, but we need to have a +0, because unfortunately the +1 is already taken. But we need to have a number unique for all, and it’s the only way. And if we have a single – unique market, then we can move from the present 80 operators to a number of 10, 15 operators. That is the way to guarantee consumer protections, but at the same time to have big, big companies. You know, today, you know the numbers…

Sir Simon Fraser GCMG

I do want to take another couple of questions, really, so…

Dr Enrico Letta

No, there are just three numbers.

Sir Simon Fraser GCMG

Yeah, okay.

Dr Enrico Letta

Three numbers: 467, 107 and five. Now I give you, and we have to – China, US, Europe is the number of – the average number of clients of a single telecom operator. So the average, the median average number of clients of an American operator is 107, a Chinese, 467, a European operator, the average number is five million clients. So it’s totally – we are playing in – we are playing in Championship, they are playing in Champion’s League.

Sir Simon Fraser GCMG

Which reminds me that Vicky’s got to get to the football, so I’m going to take a question at the back over there, and then a question at the back over here, if I may. And then, what I’m going to do is come back down the panel, if I may, if you could just, in the light of these two questions and any other comments you want to make, bearing in mind that we are up against the clock, so quick questions.

Member

Thank you for a fascinating discussion so far. I just want to ask you one more question about competition policy, because I think that your recommendations have been quite controversial, and in particular, this suggestion that we should loosen competition and maybe in-country mergers, if you’ll excuse me, referring again to in-country versus cross-border, might be allowed first. Because it seems to me that amongst EU leaders there’s a huge enthusiasm for loosening competition policy, because everyone wants to see European champions, but there’s, as we’ve already discussed, there’s a lot more political barriers to breaking down this – the divergence from a regulatory perspective. And so, aren’t we likely to see telecoms mergers that happen in-country that then lead to things like higher prices? When actually competition in telecoms is probably the one area where we’ve done much better than the US because if we want businesses to digitise in Europe, having cheap connectivity is the – probably the one thing…

Sir Simon Fraser GCMG

So the question?

Member

So, are you worried that maybe your competition recommendations will be…

Sir Simon Fraser GCMG

Yeah, will actually have the – yeah.

Member

…prioritised and others won’t?

Sir Simon Fraser GCMG

And over here, the gentleman?

Shakib

Hi, I’m Shakib. I’m a Software Engineer based in London. So basically, like, if we look back,2008, the crisis was bad for every country in Europe, Western economies especially, and I’d like to – and, like, if you look back to see that the US economy quite stood well, like, from 16 trillion to 29 trillion at the moment. But if you see the European economy, that was 13 or 14, it’s not size 16 or 17. Same with UK, the GDP per capita didn’t grow after that, like, it remained at 44 to $49,000. What is the one ingredient that the US has that other countries don’t have it? Also if you compare a little bit back, like Japan’s economy in the mid-80s when, like…

Sir Simon Fraser GCMG

Can you just keep it pretty brief?

Shakib

Yeah, just…

Sir Simon Fraser GCMG

Because we are over time.

Shakib

Yeah, sure.

Sir Simon Fraser GCMG

So your question is, what is the ingredient that the American economy has?

Shakib

Exactly, yeah, sure.

Sir Simon Fraser GCMG

Okay, thank you very much. I’m going to come back down the panel, and also, the question of political will underlies a lot of this, so maybe you could pick that up as well, Sébastien.

Sébastien Maillard

I think about the mergers and competition, it’s not only a matter of political will. Look, remember that when Alstom and Siemens wanted to merge, France and Germany were backing it, so we had two heavyweights, and the problem was the Commission was against it because of the EU ruling. So, we need to change competition law and to find the right scale to appreciate what mergers are about. So, it’s also a matter of the way this regulation is drafted. By then, if it’s – we have to end soon, I’ll just end saying that the – I believe that the reset or whatever…

Sir Simon Fraser GCMG

The reset.

Sébastien Maillard

Yeah, that’s how it’s called, you can find a new raison d’être, a new momentum also, because of the Trump moment we’re going through. And I think it’s something that must be – must – both sides, must take – talk seriously about, not – we must not end up on just squabbling about fisheries. You know, there is much more to it. So I think that there’s a lot to do there, and I’m…

Sir Simon Fraser GCMG

The Trump election is going to pose some strategic questions for the British Government in the two pillars of its foreign policy, which are the relationship with the United States and the reset with the European Union. There’s no doubt about that. Vicky?

Vicky Pryce

Well, Enrico may have views, of course, about the US versus Europe, but I did mention already how there’s been a serious problem in terms of GDP per capita in various countries in Europe, which has suffered during the eurozone crisis, all that period post the financial crisis. But in reality, what’s happened, I think, through the financial crisis, but also later, with COVID and the energy crisis, as well, is that in the US there’s an awful lot of money, and putting a huge amount of cash back into the economy. Amazing stimulus measures that we weren’t able to copy, and this is – and it’s continuing. And this is – you know, the strange thing about the Trump election is that actually, the economy has been doing, you know, considerably better than all the rest of us during the COVID period, by comparison to what’s happened here.

So, it is going back, I’m afraid, to this: size of – and of course, the dollar is the dominant currency for transactions. You know the BRICS question before, there is an attempt now to create new currencies, maybe digital ones, for all these other countries that don’t want to be affected by the SWIFT system sanctions and everything else that’s going on, and the dollar dominance. But actually it is dominant, has remained dominant. Despite all the forecasts that this was going to change, it hasn’t changed, the US is able to do it and we cannot.

Sir Simon Fraser GCMG

So Enrico, final words from you please, and I think there’s a specific question still to answer about telecoms mergers.

Dr Enrico Letta

Yeah, the two questions. On telecom, if we move to one single European market, we can have a number of competitors that can guarantee the consumer protection and the defence of the consumer, so I have no fears about that. At the same time, they can have the, how we say, the scale of dimension able to compete at world level. That is what they don’t do today because they are too small. This is my – what I think, and I think this is the low hanging fruit of the entire exercise. This is the low hanging fruit, because there’s a – our general ourness that on telecom, is a disaster, is a total disaster. There’s just one operator in Europe that is having good results. It’s because it is in the US too, and it has good results in the US, and they recuperate what they are using in that.

But your point, we are still with the stigma of the financial crisis on many issues. Take, for instance, securitisation. I put it in my report. I put in my report the need to change the approach, because securitisation today is still a stigma in Europe. It is not in the US. In the US, that was the way in which they opened a door to new investment, new stimulus, and we don’t because we still have this idea of a stigma. So…

Sir Simon Fraser GCMG

Because we have unproductive saving.

Dr Enrico Letta

Absolutely.

Sir Simon Fraser GCMG

Uncompetitive saving.

Dr Enrico Letta

Absolutely, they are sleeping savings, and this is the way in which I think we have to work. What Vicky said – Vicky said just – was very true. The fact that they are one single market, one single financial market, allow them to use their investments in a scale that is totally incomparable with our scale. And this is why I think the elimination of borders and the creation of a true financial market is absolutely fundamental for manufacturing and for industry and for the relaunch of the European competitiveness. In my view, it is the true change with all what we saw in the last years and I think that today this ourness is there. I never saw such ourness as it is today. So, this is why I think, as Sébastien said, there’s a momentum today, so it’s a moment to say, and a moment, first of all, to act.

Sir Simon Fraser GCMG

Right, well, on those words I think we’ll close this. Thank you very much, everybody, for coming. I’m sorry for those – you’re applauding. I’m sorry for those whose questions weren’t taken, and I do want to say a big thank you for being with us, because it’s a great privilege to have you here, and thanks to the other panellists for contributing.

Dr Enrico Letta

Thank you, thank you, everybody.