Europe’s derisking strategies shift investment risks towards taxpayers amid geopolitical aims

Derisking, the practice of using public instruments to make risky or slow-return projects attractive to private capital, is fast becoming central to European industrial strategy, with significant implications for who ultimately bears financial risk, who captures gains, and who determines investment priorities.

What began as a technical set of financial tools has been recast as a political choice. Proposals to create a European Competitiveness Fund within the next Multiannual Financial Framework would consolidate several instruments into a single vehicle aimed at boosting industrial productivity, strategic autonomy and defence. According to the material accompanying the fund proposals, that bundling intentionally links economic and security objectives, signalling a reorientation of public finance toward projects framed as both economic and geopolitical priorities.

The logic is familiar from recent EU initiatives. InvestEU, the European Commission’s flagship leverage instrument that builds on the Juncker Plan and EFSI, channels an EU budget guarantee to mobilise large volumes of private finance for sustainable infrastructure, research and innovation, SMEs and social investment. According to the InvestEU website, the programme aims to generate over €372 billion in investments from an EU guarantee of €26.2 billion. The European Investment Fund, which manages a substantial portion of InvestEU resources, says it deploys €12.2 billion of fund resources to attract an estimated €159 billion of investments through guarantees and equity instruments, targeting firms and infrastructure across Europe.

Recent institutional moves underscore a push to expand that model. The Council of the European Union agreed a position in April 2025 to simplify the InvestEU regulation with the explicit aim of mobilising roughly €50 billion in additional investment, and negotiators reached a provisional agreement in September 2025 to further streamline the programme. In December 2025 the Council signed off on a revision that increased the EU guarantee by €2.9 billion and broadened the programme’s remit to include competitiveness, the Clean Industrial Deal, defence industrial policy and military mobility, while easing administrative requirements for member states.

Those changes make clear that public guarantees are being used not only to promote green technologies and digital transformation but also to underwrite projects with potential defence and dual-use applications. The war in Ukraine and rising global tensions have accelerated arguments that investments in semiconductors, critical raw materials, advanced manufacturing and digital infrastructure are as much about resilience and military readiness as about decarbonisation and competitiveness. Policymakers present derisking as a pragmatic necessity: public budgets cannot meet the scale of need, therefore private capital must be induced to participate.

But critics warn that the mechanism systematically shifts downside exposure to taxpayers while leaving upside returns with private investors. Analysis cited by EU institutions and reported audits have repeatedly flagged weak conditionality, limited transparency and cases where guarantees appeared to subsidise activity that would have proceeded without public support. The European Court of Auditors has cautioned that simplification should not erode transparency or traceability of public funds, and past evaluations of earlier leverage initiatives found examples of projects that likely would have attracted finance even absent EU guarantees.

Public–private partnerships illustrate the risks of the approach when oversight is insufficient. Empirical reviews across member states have linked PPPs to higher costs, delayed delivery and accountability shortfalls, outcomes ultimately borne by the public purse. Budgetary guarantees and blended finance arrangements can therefore act as de facto subsidies to established companies and bankable projects, privileging investments that meet financial-sector criteria over those that yield broader social, environmental or long-term strategic returns.

There is a deeper governance dynamic at stake. When investment selection depends on what asset managers, development banks and private intermediaries deem investable, civil society, trade unions, municipalities and sometimes even parliamentarians have limited influence over priorities and conditions. Deregulatory trends, loosening state aid rules, streamlining permitting and weakening safeguards in the name of investment-friendliness, further concentrate decision-making power away from democratic fora.

Defenders of the leverage model argue it is the only realistic way to bridge Europe’s investment shortfall. Indeed, high-level analyses estimate the EU needs several hundred billion euros more annually to meet climate, innovation and competitiveness targets. The European Investment Bank has signalled plans to invest tens of billions in technology in coming years while seeking to mobilise still larger sums from private markets. Yet observers contend that relying predominantly on instruments that guarantee private returns will not alone deliver the scale or the mix of investments required for a transformative, equitable green transition.

Alternatives exist and have been advanced within policy debates. Recalibrating fiscal rules to treat long-term green and social investments as legitimate budgetary priorities, deploying EU-level bonds as in the pandemic response, and expanding direct public lending through national and European public investment banks would allow capital to be channelled without insulating private investors from failure. Dedicated EU revenue streams, such as using proceeds from emissions trading or targeted levies, could finance collective goods while maintaining stronger public steering. Enhanced public–common partnership models would involve communities, workers and local authorities in defining what counts as strategic, thereby embedding democratic oversight in investment decisions.

The choice before European policymakers is political as much as technical. Framing derisking as an inevitable finance fix obscures the trade-offs involved: whose risks are reduced, whose gains are prioritised, and whose voice shapes long-term economic direction. If Europe is serious about an ambitious, socially just transition, the architecture of investment must align accountability and public benefit with public support, rather than presuming that public cushions for private profit are the default instrument of progress.