The European Union finds itself at a crossroads, and faces crucial economic, technological, and defence challenges. Enrico Letta, dean of Madrid’s IE School of Politics, Economics & Global Affairs—and author of a 2024 European Council-commissioned report “Much more than a market”—argues that the answer to Europe’s problems lies in a truly single market to eliminate costly fragmentation. Letta sat down with senior partner Massimo Giordano to discuss a number of issues, including the need to reform the EU’s financial services, scale its defence industry, and promote a pro-innovation environment. The following transcript has been edited for clarity and length.
Massimo Giordano: Enrico, let me start with a personal question. What kind of European are you? How do you feel as European?
Enrico Letta: I'm a very passionate, but pragmatic European. I strongly believe Europe represents a set of values. But I also think Europe is necessary due to the question of scale. We were all big countries when the world was smaller. But today, it’s a bigger world in which all European countries—and I repeat, all European countries--are small compared to today’s giants. So we need to be pragmatic, stick together, stay united, and scale.
Massimo Giordano: You have been calling for a reinvention of the single market for several years. You’ve called for the single market to move beyond a space for trade into a true engine for Europe. What is this bold shift you are proposing? And how will it change Europe?
Enrico Letta: The key issues today are the need for greater security and competitiveness. But when you give a look at Europe’s single market, you suddenly discover that for some reason, we only completed half of the job. Whether it’s financial services, telecom, or energy, these are topics where we are act as 27, not one. And being fragmented makes us very weak in today’s bigger world.
This is why my first big message with the report on the future of the single market is to make people aware of the fact we have just half of the single market completed. So it’s time to unify and finish the fundamental work in this quest for security and competitiveness. If we don’t, we will keep depending on others, and that’s not good for Europe.
Massimo Giordano: You mentioned financial services. Europe has enormous financial strength, with more than a trillion Euros in household savings. But every year, we see a lot of those savings being invested outside of Europe, with some estimates putting that number as high as 300 billion Euros per year. Given your pragmatism, what can we do to try to direct our savings towards European companies, infrastructure, innovation, and AI? How can we make this change?
Enrico Letta: The starting point of this reflection is the fact that in today’s world, private investment in areas of public concern like innovation, infrastructure, defence, and the fight against climate change are absolutely fundamental. But in Europe, we are not very well- positioned for private investments in these areas for a very simple reason. We are not one financial market, but 27 financial markets.
Fragmentation is the main reason for our weakness, so the need to unify financial markets and services at a European level is fundamental. Why are savers and investors leaving Europe? Because of better returns elsewhere. So we must give them better returns here. That’s why the report’s main proposal is the creation of a Savings and Investments Union (SIU), to create a bridge between saving and investing, which is a novel idea in Europe.
Europeans typically expect public funding for investments, but in reality, the true game changer will be this bridge between savings and investments. The Savings and Investments Union is a big, complicated mission, but absolutely necessary to boost competitiveness at the European level.
Massimo Giordano: Private capital has played a key role in changing the shape of the US economy, accelerating companies' growth and investments. In Europe, this is also happening but can probably go faster or attract more investments. What changes should we make to help this big change in our private capital efforts?
Enrico Letta: The main idea behind the switch from the old EU project of the Capital Markets Union to this new Savings and Investments Union is to move in exactly the direction you mentioned. We were not able, until now, to focus all our energies for the integration of the single market into financial services.
At the same time, we were not able to boost private investment or mobilize private capital for the big investments needed today. If you take AI, for example, private investment is making all the difference. Scale matters, but we are too fragmented to mobilize this essential dimension of private capital
This is the idea behind the Savings and Investments Union. We’ve enabled the decision makers at the European level to create this bridge and transform savings into tools to strengthen the real economy and invest in innovation, artificial intelligence, infrastructure, decarbonisation, the fight against climate change, and at the end of the day, security.
Because the big news in Europe these last three years is the fact we can no longer take security for granted. With all the changes in American foreign policy, we need, as Europeans, the ability to spend what is necessary to ensure our own security.
At the same time, we must consider—and I underscore this point as one of the most important messages of my report--security as a broader concept. Security is not just the number of weapons. Security means being energy independent. Security means having a strong financial single market. Security means independent connectivity. All these subjects require a united European single market, and we must start with financial services, which are absolutely fundamental for this security and independence.
Massimo Giordano: Defence and security are very important topics, and I like the way you think of them in very broad terms. As you know, there have been some declarations and commitments to substantially increase the investment in security. We have 27 countries talking about aerospace and defence. How can we overcome this and truly scale where we can make and accelerate those investments?
Enrico Letta: After many years of hearing the clear American message about the need for true burden sharing of global and European security, we are finally taking this issue seriously. And I think the decisions of the last NATO summit are propelling us in the direction of a more independent European security capacity.
But I must underscore one of the crucial points of this discussion. Which is that all these new investments won’t be enough if we cannot work together in terms of sharing tools, ensuring interoperability of our systems, and firstly, consolidating and scaling up our defence industry.
It’s absolutely clear that Europe must create an Airbus of the defence industry. And if we are unable to do so, it will be very complicated to spend efficiently. So I see reason for a big red alarm on this topic. Because everything we decided together these last few months depends on interoperability. And that requires decisions, behaviours, and attitudes, that to be frank, I don't see on the table.
This is why we need strong European leadership among member states and in Brussels to oblige all 27 states to work together. It's absolutely essential for our future, for our security, and for our competitiveness. Because if we spend all this money to buy non-European military hardware, we have a real problem. This is why we must work together on interoperability.
Massimo Giordano: Capital in a more unified market should support interoperability among large organizations, but also the many mid-sized companies entering the market. We talked a couple of years ago in Davos about the 28th regime, and there is a rising interest in it. It’s basically a legal framework for companies to operate in each of the 27 states with a regime which is truly European. How is this going? Is there a real interest, or just a few people trying to push it forward?
Enrico Letta: Massimo, the meeting you organized in January 2024 at Davos on these topics was absolutely decisive to focus on this new proposed legal framework known as the 28th Regime. I sensed the interest of participants at the meeting to this proposal, and immediately began developing the idea, which is now in the hands of the European Commission.
I was very happy with the proposal by Vice President Séjourné on behalf of the entire European Commission for a strategic plan to create a single market, which is a first step for start-up companies. That is, for me, a good beginning. I think we must extend the model to the entire system, but we can focus on different needs at the same time.
Massimo Giordano: In your opinion, what should the private sector try to do to push ahead?
Enrico Letta: I think the magic word is advocacy. The private sector must be more vocal and proactive in explaining to national governments and to European institutions that the time is now to leverage global political instability. Whether it’s the various conflicts or the trade wars, etc., the European Union must use its internal tools instead of asking for someone to come rescue us.
We have lots of tools we can use more effectively, and should start with the two jewels in the crown—the euro and the single market. Because only when we realize the single market remains half-finished can we understand how to mobilize all our energies and win the race for competitiveness.
So I ask those listening to consider a more vocal approach from the private sector. Asking for brave reforms, more integration, more scaling up, and less fragmentation can boost European competitiveness. It can also help de-ideologize all the public debate over Europe. Because it's not a question of the European flag versus our national flags, or vice versa.
It's exactly the opposite. It's the need for a pragmatic discussion of the fact in today’s world, fragmentation among 27 member states means weakness. If we are more integrated, we can win at a global level, and this is what we need. Which is why a vocal approach from the private sector is absolutely necessary.
Massimo Giordano: We are now seeing a much more intense dialogue compared to the past, and we should be happy to see leaders from both the public and private sector now very engaged. I think the diagnosis is very clear to everybody. The real question is how to make things happen. Enrico, you've been travelling throughout Europe during the past several years. Can you give us a striking example of European excellence?
Enrico Letta: I was really very impressed by the strength of our educational, training, research, and innovation programs through Erasmus+ and Horizon Europe. When I travel the world, people are always commenting on these very attractive tools, citing the need to replicate them in their countries. And when you speak with European youth, you get the feeling that we really built some useful programs.
But we have to intensify, expand, and extend these tools that have proved so successful in the past, and turn them into true engines for European competitiveness. It isn’t true that Europe cannot innovate, because we are very good at innovation. But we are not good at creating the right environment, pushing people to invest in innovation, and encouraging an innovative mindset.
Our biggest risk is European youth leaving for other countries where they can more easily find investment funding and an environment that isn’t as risk-averse, which is all too often the case here.
So we must bet on this new generation, while eliminating these typically European conservative, pessimistic, and risk-averse modes of thinking. We know that many people throughout the world want to live, study, and invest in Europe. Our big goal is to eliminate these obstacles that weaken our prospects. Our destiny is in our hands, we know what to do, and now we have to act.
Massimo Giordano: Thank you very much, Enrico. To be continued.
Enrico Letta: It's a pleasure. Thank you.
