Could There be a European Super Sovereign Wealth Fund?

Posted on 01/19/2023

European Union leaders and member nations are putting plans together to combat the United States in the energy transition race. The 27-nation bloc applauds the U.S. for its move toward cleaner energy production, but business-wise fears the US$ 369 billion U.S. Inflation Reduction Act. European nations are concerned about their industrial base, which has already been hindered by the EU’s frosty energy relationship with Russia over the War in Ukraine. The European Commission will propose a Net-Zero Industry Act that lays out a series of clean tech goals for 2030.

EU President Ursula von der Leyen is looking at making a European Sovereignty Fund to keep firms from moving to the United States.

The fund would be sort of a strategic development sovereign wealth fund (SDSWF). Von der Leyen wants the European Sovereignty Fund to be granted with the right budgetary means to be credible. The fund would target well-identified projects of interest for EU sovereignty across any sector of its industrial spectrum. The fund would likely be financed by common debt, similar to the NextGeneration EU, a €750 billion fund in 2018 prices or €806.9 billion in late 2022 prices.

NextGenerationEU is a more than €800 billion temporary recovery instrument to help repair the immediate economic and social damage brought about by the coronavirus pandemic. The centerpiece of NextGenerationEU is the Recovery and Resilience Facility (RRF) – an instrument for providing grants and loans to support reforms and investments in the EU Member States at a total value of €723.8 billion. To receive funds under the Recovery and Resilience Facility, Member States need to prepare Recovery and Resilience Plans outlining how they are going to invest the funds. Moreover, they need to fulfil the relevant milestones and targets, and before any disbursements under the RRF can flow, the Commission assesses the satisfactory fulfilment of each milestone and target. The rest of the funds from NextGenerationEU are being disbursed to EU Member States by several EU programmes: the Recovery Assistance for Cohesion and the Territories of Europe (REACT-EU), Horizon Europe, InvestEU, European Agricultural Fund for Rural Development, or the Just Transition Fund (JTF).

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