16 May 2024

The Letta Report: Less integration is not the way forward for Europe

Enrico Letta presents his report on the opportunities and challenges of the Single Market on a tour of Europe. His first stop was Frankfurt at the invitation of the SAFE Policy Center, where he was joined by Bundesbank President Joachim Nagel

The former Italian Prime Minister and European Rapporteur calls for a framework for the European Single Market that reflects the democratic values of the Union and serves all EU citizens. They should also be able to help shape it. On 7 May, about 150 interested people came to Campus Westend to hear Enrico Letta’s assessment of the Capital Markets Union. The event was organized by the Leibniz Institute SAFE together with the Jacques Delors Centre in Berlin.

In the subsequent discussion with Bundesbank President Joachim Nagel and Cécile Boutelet, economic correspondent of the French daily Le Monde, it became clear that Europe must work more closely together to remain competitive. According to Letta, European citizens need to understand how the challenges of transformation will be financed and what the benefits of the Capital Markets Union project will be. Nagel added that member states should delegate powers to the supranational level to create a stronger Europe.

The fifth freedom

Letta spent eight months researching in Europe on behalf of the European Commission to analyze the state of the Capital Markets Union. In his report, “Much more than a market – Speed, security, solidarity,” he stresses the importance of further integrating the Single Market. Especially in the areas of energy, electronic communications networks and financial services, Europe-wide cross-border action is needed. The EU must create a “fifth freedom” that enables research and innovation. The current “one-way streets” from structurally weaker states in the south and east to more advanced ones in the north and west must be overcome. In this way, financing and innovation in transformation processes and global competitiveness can be secured, Letta emphasized.

Bundesbank President Nagel agreed: “Less integration is not an option,” he said. “I hope this will not be forgotten after the European elections.” He was skeptical about subsidies and state aid for a stronger Single Market. These should remain the exception, as they were during the coronavirus crisis, for example. The EU member states should show more willingness to compromise, Nagel said, citing solvency law as an example: 27 different laws in the EU mean unnecessary bureaucratic hurdles. He would also like to see more integration in the banking sector.

Podium with Cècile Boutelet, Enrico Letta, and Joachim Nagel (from left to right)
Cècile Boutelet, Enrico Letta, and Joachim Nagel (from left to right)

Letta used the example of electronic communications to illustrate why the size of companies matters: European providers were left behind in the move to smartphones because they lacked speed and dimension. “We are lagging behind,” he said, referring to the growing market power of China and the United States. Strong players are also important in the EU, he said.

This does not mean sacrificing the companies’ diversity in each member state. Small and medium-sized enterprises and start-ups would also benefit from easier access to finance: “The Capital Markets Union is not just finance for finance,” he said.

Letta underscored that the EU must credibly communicate that the transformation to a green and digital economy can be financed. Skepticism among EU citizens is currently evident in protests by farmers and the relocation of start-ups to the US. Nagel also emphasized that Europe is too dependent on other countries for IT infrastructure, for example, and is therefore compromising its resilience and security.