Europe must invest substantially more in the green and digital transitions, innovation and international climate finance. This additional investment should be shared between the private sector, national budgets and the European Union budget. We estimate that the part of the investment gap best financed through the EU budget, because it relates to European public goods (EPGs), amounts to about 0.9 percent of EU gross national income (GNI) annually.
We assess the potential of the European Commission’s proposed 2028-2034 EU budget to close this gap. Because, under the proposal, EU countries would have flexibility in allocating funds, and the effectiveness of the budget’s financial instruments to mobilise private investment is uncertain, we develop three scenarios: (1) countries maintain current spending patterns; (2) all available funds are directed to the EPG gap; and (3) funds are allocated to the overall investment gap, regardless of whether investment qualifies as EPGs.
We find that the proposed budget would close only around 12 percent of the EPG gap in scenario (1) and 22 percent in scenario (2). In scenario (3), it could cover only four to eight percent of the total additional investment needs. Closing the entire EPG gap would require an EU budget that is 0.6 percent of GNI larger than proposed. EU countries should prioritise investments that advance Europe’s long-term objectives rather than preserve current spending patterns. Financial instruments cannot substitute for direct public investment. Research, climate mitigation and cross border infrastructure require sustained public funding. Better data, especially on defence, is also needed to assess EU-level investment needs.
The views expressed in this paper are those of the authors and do not necessarily reflect those of the institutions they represent. The authors thank Marco Buti, Debora Revoltella and participants at a Bruegel research meeting for valuable comments and suggestions, Stephen Gardner for outstanding editorial support, and Hèctor Badenes Rodríguez for the excellent layout of this working paper.