A roadmap for channelling investments in the new programmatic period in Europe

The forthcoming 2024-2029 programmatic period in the European Union offers a unique opportunity to redefine our approach to investments and foster sustainable growth, innovation and competitiveness across the continent. To navigate this complex landscape successfully, we must consider the roles of the private, public and civil society sectors in addressing key policy challenges. This article outlines a comprehensive policy proposal aimed at channelling investments effectively, with a focus on enhancing transparency, simplifying bureaucratic processes and promoting long-term sustainability.

The role of sectors

The private sector plays a pivotal role in driving economic growth and innovation. Businesses, especially start-ups and SMEs, should be encouraged to invest in research and development (R&D) and human capital. To achieve this, the enforcement of Employee Stock Option Plans (ESOPs) coupled with additional concrete liquidity options can make it more attractive for employees to invest in the companies they work for. Additionally, the establishment of an EU limited (Ltd) legal structure would reduce the cost and complexity of scaling for European enterprises, fostering entrepreneurship and international expansion.

Public institutions should focus on creating a conducive environment for innovation and sustainable development. The European Investment Fund (EIF) should continue to play a crucial role in decentralising investments and supporting start-ups across the continent and focus less on mature and more developed European markets. National diversity at the fund management level should be a requirement for EIF selection to ensure equitable distribution of resources. Moreover, the European Commission should streamline the Horizon Europe framework, making it less bureaucratic and more accessible, ultimately reducing time and resource allocation for interested parties. EIF invests indirectly in start-ups and scale-ups via financial intermediaries known as venture capital funds. Another available tool for start-up investments, directly to end beneficiaries, is the EIC Accelerator. The EIC Accelerator has received more positive feedback than Horizon Europe, thus being a good case study of a support mechanism for entrepreneurship.

Civil society organisations can act as a bridge between the public and private sectors, advocating for transparency and accountability in the allocation of funds. They can also facilitate cross-sector collaboration and innovation, ensuring that investments align with the needs and values of the community. Civil society should push for greater transparency where taxpayers’ money is invested, promoting trust and public support for these initiatives.

Forging a way forward

Transparency and accountability form the foundation upon which trust in the investment process is built. To forge a way forward, we must start by providing clear and accessible information on the allocation of taxpayers’ money, as well as the impact of these allocations and their effect on European life. This transparency will enhance public support and allow for better scrutiny of investment decisions.

The three key transitions of our time – green, digital and demographic – should be prioritised in investment strategies. Encouraging long-term investments in these areas will drive sustainable growth and address pressing societal challenges.

To foster an innovation ecosystem, Europe should invest in both infrastructure, such as quantum computing and digital networks, and human capital through education and venture support. Cross-sector collaboration and innovation hubs can facilitate knowledge-sharing and technology transfer.

Necessary steps and policies

• R&D-like rebates to other verticals: extend the R&D rebate structure to include cultural and educational projects. This would incentivise investments in the cultural and educational sectors, promoting creativity and lifelong learning.
• Micro-business empowerment: empower local businesses and digital nomads by implementing localised taxation and incentivisation in favour of micro-businesses. This policy would support entrepreneurship and local economic development.
• Pension funds: standardise pension funds on the EU level and create an EU pension fund dedicated to investing in innovation and start-ups. This approach would mobilise significant capital for high-growth ventures and diversify public funding for innovation.
• Wealth redistribution and employee incentivisation: implement policies to ensure that the wealth generated by successful entrepreneurs is reinvested in the European economy. Write-offs for losses in certain asset classes, as practised in the United Kingdom, can encourage investment in innovation. Encouraging the adoption of Employee Stock Ownership Plans (ESOP) with liquidity options should be actively promoted. Governments and industry associations can provide incentives and guidance to companies looking to implement ESOP schemes.
• The EU Ltd: the EU Ltd proposal suggests the creation of a unified legal entity that would be recognised and accepted in all EU member states. The EU Ltd would provide businesses with a straightforward and consistent legal framework for expansion within the EU. This simplification would save valuable time and resources, allowing companies to focus on growth and innovation rather than navigating complex domestic legal procedures. The current system requires businesses to adapt to the legal requirements of each member state individually, leading to significant legal and administrative expenses. The EU Ltd would reduce these costs by eliminating the need for multiple legal entities and compliance processes.

The new programmatic period in Europe presents a unique opportunity to rethink our investment approach. By involving the private, public and civil society sectors and focusing on transparency, long-term sustainability and innovation, we can channel investments effectively. This policy proposal outlines the necessary steps and policies to navigate this period successfully, ultimately fostering economic growth, competitiveness and innovation across the continent.

This article is part of our Rethinking economics series, find out more here. The views expressed in this #CriticalThinking article reflect those of the author(s) and not of Friends of Europe.