Behind InvestEU’s Trojan Logic

The European Union (EU) is confronting multiple, intersecting crises. Amidst the climate emergency and an imperialist war at its direct borders, geopolitical tensions intensify with the day. US President Trump’s tariff walls raise fears of a global recession, and his threats to reduce NATO support lay bare the fragile asymmetric power relations within the Atlantic security system. At the same time, competitive pressures from emerging economies are increasing, notably with Chinese manufacturers moving ahead of global value chains in so-called game-changing industries, while EU economies continue to struggle since the 2008 financial crisis and the Covid pandemic.

In an attempt to strengthen the global competitiveness of the common market, the European Commission has launched a series of industrial policy initiatives that, the Commission claims, will simultaneously realise the climate goals for net-zero emissions by 2050(opens in new window) . The greening of EU industrial policy may appear politically appealing; yet, both its substantive orientation and underpinning financing architecture are filled with contradictions. The EU’s push for a green industrial transition is wrapped in techno-solutionist fixes. At the heart of it is InvestEU, a major de-risking vehicle that quietly hands power to investors through its complex blend of public-private funding modalities. By looking at who’s making the profits and who’s calling the shots, we show how InvestEU gives outsized power to financial players while weakening public oversight and democratic control. Ultimately, the EU is outsourcing both the responsibility for, and the pace of, decarbonising capitalism to investors that prioritise immediate returns over planetary sustainability.

EU Industrial Policy and the Geopolitics of Capitalist Competition

The reassertion of EU industrial policy needs to be situated within the reconfiguration of global capitalism. Not only did emerging economies like China and India double their share of global GDP within just two decades, from 1990 to 2010, but they also adopted ambitious industrial programs like ‘Made in China 2025’, or ‘Make in India’, targeting advanced technology and high-value-added sectors. The EU responded by announcing a ‘European Industrial Renaissance(opens in new window) ’ in 2014, promising a 20 per cent increase in manufacturing’s share of EU GDP by 2020. Despite the launch of a plethora of industrial plans, acts and deals, as well as concrete initiatives ever since then, this goal could not be reached.

Particularly with the European Green Deal, adopted in 2019 as an overarching economic growth strategy, these initiatives formed part of a techno-optimistic narrative, promoting a digital and green twin transition, which promotes the idea that the digitalisation of industries and societies is a key enabler for greening capitalism. Even military-industrial projects(opens in new window) have recently been subsumed under a green rhetoric, and legitimised in terms of advancing ‘energy resilience and the reduction of the defence environmental and carbon footprint’.

At the same time, European Commission President von der Leyen has made it unequivocally clear that the EU winning the race to lead green and clean technology value chains will take precedence over decarbonising capitalism. Testimony to this is the 2023 Green Deal Industrial Plan and its headline goal of ‘putting Europe’s net-zero industry in the lead’, and more recently, the 2025 Clean Industrial Deal(opens in new window) , which gives priority to global competitiveness and ‘securing the future of manufacturing in Europe’. Competing with ‘Build and Buy America’, ‘Powering Up Britain’, and ‘Made in Canada’, EU industrial policy is intended to bring manufacturing capacity back to Europe and reduce dependencies on global supply chains. The same strategy is also reflected in the EU’s commitment to ‘open strategic autonomy’ and ‘technological sovereignty’, along with flanking regulatory safeguards for outbound investment control, enhanced foreign investment screening protocols, and export control coordination.

The financing of EU industrial policy constitutes a fundamental challenge. The European Commission(opens in new window) has estimated that to scale up manufacturing capacities for net-zero technologies, and maintain competitiveness more generally, current investment levels would need to increase by at least 25 per cent, reaching €5 trillion every year until 2030. Yet, with an annual budget comparable to that of Denmark, and deficit spending and debt financing being ruled out by the Treaties, the EU lacks the fiscal firepower of its major trading partners. The EU also has no meaningful taxing powers that could increase its revenue base or allow it to offer tax concessions to targeted industries. Similarly, Eurozone members face significant constraints for large-scale industrial investments, especially with the post-Covid reinstatement of the excessive deficit procedure. This mechanism, part of the EU Stability and Growth Pact, requires member states to prevent or address large budget deficits, such as excessive borrowing or spending relative to the state’s income.

Despite the EU’s limited fiscal capacity, the European Commission has been frantically piecing together a patchwork of public-private financing strategies. Alongside the redirection of the longstanding EU structural funds for industrial policy purposes, the Commission has significantly relaxed the rules on state aid at the national level. By using treaty provisions for Important Projects of Common European Interest (IPCEIs), the Commission circumvents traditional state aid restrictions and enables unlimited subsidies for strategic sectors such as batteries, microelectronics, hydrogen, cloud and edge computing, and the health industry. In addition, the EU has increasingly secured financing through capital markets, issuing bonds on behalf of the 27 EU member states, which essentially means taking on joint debt by making use of the EU-27’s collective triple-A credit rating. This is the highest possible rating given by credit rating agencies, meaning they see virtually no risk of the borrower defaulting. Meanwhile, the EU budget, combined with the EU’s collective borrowing on capital markets, serves as a collateral guaranteeing returns to investors.

InvestEU – Crowding in Financial Capital

Adopted for the 2021-2027 budgeting period, InvestEU is the EU’s key financing vehicle for industrial policy purposes. As the nomenclature suggests, the EU itself does not invest; after all, it is tellingly named InvestEU and not EUInvest. The view rather is that the EU must ‘stimulate greater appetite for risk-taking by private investors, using public money as an anchor(opens in new window) ’.

InvestEU is primarily a way to give private investors a guarantee that a part of their investment is protected. It works on the assumption that investors will take more ‘risk’ and invest more money where the EU wants or needs it, if they know the EU budget is providing a safety net. The scheme uses an EU budget guarantee of €26.2 billion, and the Commission hopes that this fund will catalyse at least €372 billion in public and private investment. InvestEU operates in a similar manner to an insurer: it pools risks, charges fees, and offers protection against financial losses. However, InvestEU does not administer the risk insurance scheme directly – there are many other actors involved. The European Investment Bank Group manages 75 per cent of the amount guaranteed by the EU budget, and then channels it through a select group of accredited financial intermediaries (such as banks). The remaining 25 per cent is handled directly by the European Commission, which may also use financial intermediaries at its discretion. These intermediaries can include private equity and venture debt firms, commercial banks, and even angel investors.

Companies seeking funding approach these financial intermediaries, which negotiate the risk coverage with the European Investment Bank Group or the Commission. After various departments within the European Commission have conducted an eligibility check, the proposal is tabled for a final decision at the InvestEU Investment Committee, which is made up of so-called independent experts, most of whom come from the financial sector.

The financial intermediaries can get public guarantees that sometimes cover up to 80 per cent (or more) of their losses, effectively using public money to cushion private risk. At its core, the scheme is a risk-transfer model where public money is used as a safety net for private profits, all with limited democratic accountability over how much of the investment risk is publicly covered, and how and where the financing is deployed.

Financial Intermediaries as Gatekeepers: green promises, private profits, public risks

InvestEU facilitates a highly asymmetric risk structure where investment losses of financial intermediaries are passed on to the EU budget, while profits remain privatised. At the same time, these intermediaries function as gatekeepers over publicly guaranteed capital. Within set parameters, they select which companies and projects receive financing and also partly determine the conditions, while bearing only a fraction of the financial risk.

InvestEU is usually portrayed in various shades of green that suggest a ‘green’ mandate, but this is misleading: only 30 per cent of investments need to comply with the EU’s green taxonomy – an EU classification system defining which economic activities count as environmentally sustainable, though this controversially designates certain nuclear and gas projects as ‘green’. The remaining 70 per cent can be used for non-green activities across any sector, meaning end recipients can include companies of any size and from virtually any industry, including defence and defence-related industries.

Moreover, there is no explicit link to concrete EU industrial policy initiatives, meaning that the guarantee mechanism can be used for various activities(opens in new window) that can be categorised under the label ‘strategic interest’.

This open and flexible architecture has been widely endorsed by representatives of financial capital. It is unsurprising, given that the scheme was co-shaped by financial sector players, including InvestEurope, the world’s largest association of private capital providers such as private equity, venture capital, and infrastructure investment funds, the European Business Angel Network, and individual investment funds such as Meridiam and Amundi. Such institutionalisation of financial interests is not a by-product but policy: the Commission has established ‘a structured dialogue with the financial industry’ since 2013 in order to make ‘private investments more attractive’(opens in new window) .

Even though the green character is largely symbolic, through InvestEU, the EU effectively delegates the pace and direction of the green transition to the willingness of private investors to invest, including investors driven by short-term profit maximisation rather than long-term climate priorities. Through the financial intermediaries’ gatekeeper mechanism, the EU is institutionalising private power over public resources.

Contradictions at the heart of EU investment policies

The EU cannot finance its budget through debt, but the EU Treaties do not prohibit the issuance of EU-27-backed securities or bonds(opens in new window) for off-budget operations, as long as they are approved by the Council. The largest collective borrowing operation in EU history so far was the temporary Covid-19 recovery program NextGenerationEU (NGEU), which received 90 per cent of its financing through the Recovery and Resilience Fund (RRF) for which the European Commission(opens in new window) borrowed €807 billion on behalf of the EU-27 by issuing green bonds. NGEU presents itself as a green industrial investment program for the benefit of future generations, but it is pervaded by a fundamental contradiction: the repayment involves an intergenerational debt transfer, burdening future generations with €30 billion in annual debt servicing(opens in new window) , starting in 2028 and ending in 2058. This contradiction becomes even starker when one considers the fact that unused NGEU funds can be transferred to national InvestEU entities, which has the perverse outcome that 40 per cent of InvestEU guarantees are debt-based(opens in new window) . In other words, collective public debt is being used to de-risk private debt provision to projects that are not necessarily advancing the promised green transition.

InvestEU is also riven with contradiction. The scheme is based on two fundamentally inconsistent premises. First, that private investors require public guarantees because investments are deemed too risky to bear alone; yet simultaneously, these same investments are assumed by the EU to be so safe that the InvestEU scheme will not have to use its funds to compensate investors, so the EU budget can be repeatedly leveraged for future investments, without meaningful depletion. This contradiction reveals a profound information asymmetry: either the EU possesses superior risk assessment capabilities that investors do not have, or investors systematically overstate risks in order to access public guarantees. Beyond this contradiction, InvestEU’s institutionalisation of public risk absorption creates perverse incentives for rent-seeking behaviour: investors have a clear motivation to inflate both risk assessments and projected returns to justify a higher guarantee coverage.

Crowding in Financial Capital, Crowding out Democratic Oversight

A 2017 report by the European Parliament(opens in new window) concluded that the complex and opaque ‘galaxy of funds and instruments’ revolving around the EU budget is a structural obstacle to democratic oversight of the European Commission. Rumour has it that even the European Commission had lost oversight, requiring external experts to regain control over the intricate hybridisation of public and private capital allocation(opens in new window) .

Although the European Parliament, together with the Council, establishes the annual EU budget, it only has the right of approval or rejection, without the authority to change concrete program expenditures or funds. Moreover, risk guarantee instruments, such as InvestEU, based on the EU budget, are adopted through Council regulations, without involving the European Parliament in the legislative process or even consulting it(opens in new window) . The formal right of control of the European Parliament is also undermined by the fact that individual MEPs must proactively request access to risk guarantee contracts, such as those made between InvestEU financial intermediaries and companies or investors, and even then, they only gain access to censored versions due to so-called ‘commercial confidentiality’ considerations. Furthermore, the European Parliament’s budgetary powers remain limited to the regular EU budget, while all off-budget instruments (such as the NGEU referred to above) operate without any democratic control.

While there is a Common Provisioning Fund outside the EU budget that acts as a buffer for conditional obligations, covering 40 per cent of InvestEU-guaranteed amounts, it remains unclear whether and (opens in new window) how the European Parliament would be consulted(opens in new window) if and when the losses of financial intermediaries ultimately burden the EU budget(opens in new window) . This democratic gap is reinforced by the fact that the European Court of Auditors(opens in new window) , parallel to parliamentary limitations, is also not authorised to audit off-budget instruments or funds(opens in new window) managed by the European Investment Bank Group.

Even though no laws have been formally violated, the result is a systematic undermining of democratic accountability: substantial financing flows operate outside the oversight of EU institutions with democratic control functions. This is particularly problematic because the percentage of a private investor’s losses, or the compensation investors can receive if their return on investment is less than expected, is neither set nor transparent. These crucial parameters are agreed ad hoc in closed negotiations between financial intermediaries and the European Investment Bank Group or the European Commission, and then proposed to the so-called ‘independent’ InvestEU Investment Committee, which takes a final decision, where ‘independent’ can be read as a euphemism for ‘democratically uncontrollable’.

The grim reality of the green transition in the EU

Green transition initiatives are prominent on the EU agenda, but the pursuit of global technological supremacy and competitiveness prevails over the decarbonisation of industries, and this, while a phasing out of fossil fuels is urgently needed. With the use of complex public-private financing constructions, the EU de facto delegates the pace and direction of the green transition to profit-driven investors, at the expense of democratically legitimised institutions. At the same time, substantial public and private capital flows to energy-intensive and ecologically destructive sectors remain untouched.

The situation has become even more grim as the already compromised green transition risks being overshadowed by a defence imperative whereby EU investment priorities, including the mobilisation of financial capital, are being redirected towards bolstering military capabilities at astounding speed.

At the heart of this lies a fundamental equivocation about the compatibility of capitalist growth and ecological sustainability. By maintaining the illusion that the green transition can be achieved alongside unlimited capitalist growth on a limited planet, the EU places a double mortgage on future generations, a financial and an ecological one. This illusion blocks the systemic transformation toward a socially just and ecologically sustainable economy that the climate crisis demands.

This text is building on the article ‘Finanzialisierung – die Achillesverse des European Green Deal’(opens in new window) published in June 2025 as an online article at the journal
Luxemburg. Gesellschaftsanalyse und linke Praxis by the Rosa Luxemburg Stiftung in Berlin.