Suspending funds is the EU’s strongest tool to safeguard rule of law. In Hungary, release of frozen EU funds was a key factor in Péter Magyar’s campaign.
The Commission wants to enshrine RoL conditionality in the next MFF. In a new paper, I take a closer look: www.delorscentre.eu/en/publicati...
Subsidies on full throttle?
The EU Commission is about to change state aid rules yet again, given the energy crisis. One interesting component: electricity prices for energy-intensive industries can be subsidised even more.
This impacts subsidies like Germany's "Industriestrompreis": (1/5)
6/ If this model of indirect political steering fails, the Scaleup Europe Fund will likely invest like a commercial fund that happens to be very large. This would mean that it does not reach its potential for anchoring and scaling European champions in strategic sectors.
5/ The market-based approach could work. However, three principles must be enshrined in the fund's investment strategy, which is currently being negotiated: Give out large investment tickets, channel capital towards strategic sectors, and take measures to keep companies in Europe.
4/ Draghi had identified the same gap and suggested that the EIB take on equity investments in strategic scaleups. In comparison, the Scaleup Europe Fund has the advantage that it also channels private capital and utilizes market incentives, as it will be managed by a market-based fund manager.
3/ First, it should act as a bridging instrument to finance scaleups in the EU while the private VC system remains underdeveloped. Second, it should steer capital towards technologies that are strategically important for the EU and currently remain underserved.
2/ Existing EU programmes do not adequately address the issue: A gap remains for scale-up financing rounds, which require larger volumes of capital than what is currently being invested. In this context, the Scaleup Europe Fund should fulfil a two-fold purpose.
1/ Size matters: VC funds in Europe tend to be much smaller than in the US, which constrains their capacity to shoulder capital-intensive later-stage financing rounds of scaleups. This is a problem especially for capital-intensive deep- and cleantech ventures, which need huge upfront investments.
Young, innovative firms often struggle to grow in Europe, and access to finance is a key issue. Now the EU is setting up a €5bn public-private fund: The Scaleup Europe Fund.
In my new policy brief, I discuss whether this is a good idea and how the fund should be designed.
Main takeaways 👇
After months of wrangling and an epic list of delays, the Commission has finally released its Industrial Accelerator Act.
This could turn into one of the EU’s most consequential industrial policy files in years - and the proposal is honestly not a bad place to start.
Some quick thoughts:
Das klingt ganz gut.
Wenn Deutschland sich bei der gemeinsamen Aufsicht jetzt tatsächlich bewegt, kämen bei der Kapitalmarktunion mal weg von Sonntagsreden und hin zu echten Integrationsschritten.
Max is right. The strategy has to be about creating momentum that brings everyone along.
On capital market integration in particular, this means strengthening existing EU initiatives - not running a six-member-state sideshow.
From what I understand, that’s the direction for now.
X's AI tool Grok reportedly produced 3 million sexual deepfakes in 11 days - today the Commission reacted and opened another formal investigation into X under the Digital Services Act.
Here is what the investigation is about ⬇️🧵
ec.europa.eu/commission/p...
I fully agree! 28th Regime on its own will not be enough, and pensions are a powerful lever that will probably not be touched.
I agree that Europe should not become exactly like the US. Still, the absence of EU tech champions means that we are dependent on Musks and Zuckerbergs for critical infrastructures.
The full report is available here: www.bundesfinanzministerium.de/Content/DE/D...
10/ What is next?
Momentum around the 28th Regime is strong, but negotiations will be very difficult. Pension reforms are even more complicated and lie with the member states. Public money is scarce these days. Here’s hoping we do not go overboard with deregulation measures to compensate.
9/ Third, the report could provide a much-needed push for the SIU. You can take walks on the graveyard of dead CMU agendas, and there's the fear that this time won't be different. However, this report was commissioned by the FR and DE governments, so we have political heavyweights to push it along.
8/ What to make of this?
The report provides a very good description of the problem, nothing completely unheard of, but a detailed and sound analysis. Second, it gives clear recommendations. Especially measures to increase the role of institutional investors in VC could really make a difference.
7/ 5. Listing conditions in Europe are relatively unattractive, pushing firms to list in the US and often relocate. Hence, address gaps between listed and non-listed companies, and reduce listing requirements. Improve integration and liquidity of trading venues.
6/ 4. Create a simple, flexible 28th Regime for corporate law to help European companies scale under a single rulebook, cutting complexity for founders and investors. Harmonise stock-option regimes to further reduce fragmentation for innovative companies.
5/ 3. Optimise public financing mechanisms to support the innovation financing ecosystem in the EU: Design initiatives that help crowd in private investors. Expand the European Tech Champions Initiative, which supports scaleups. Coordinate national initiatives across borders.
4/ 2. Mobilise existing capital pools: Adjust regulatory frameworks that discourage institutional investors from VC investments. Government initiatives like Tibi and WIN can also help steer them towards scale-up financing. Appropriately expand the participation of retail investors.
3/ Recommendations
1. Increase the role of institutional investors like pension funds and insurers in VC, as is the case in the US, by expanding funded pensions. Broaden occupational & private schemes via opt-out design and tax incentives, favour non-guaranteed returns, and build collective funds.
2/ What needs to change?
Access to finance is a key constraint. Banks are not well-equipped to provide risk capital, and European VC funds are much smaller than in the US. Consequently, less VC is available, and later-stage VC financing in 2024 was 84% lower than in the US.
1/ First, what is the problem?
Europe has a formidable research and innovation system, but struggles to produce global tech champions. Over the past 50 years, it has produced only a handful of firms with a market cap > EUR 10 billion, compared to hundreds in the US.
You may have missed it amidst the chaos of the last few days, but there is a new high-level EU report in town: A Franco-German task force led by Jörg Kukies and Christian Noyer presented recommendations to tackle the scale-up financing gap.
Here is what it says and why you should care about it.
1/ This year revealed how the EU's critical raw materials dependence has become an economic security vulnerability. ReSourceEU is the EU’s most serious attempt yet to remedy this. To end the year, I dive into what it does and whether it can shift the trajectory: www.delorscentre.eu/en/publicati...
A Christmas break might do EU doomers some good too.