By Stephanie Nahmia* and Sam Namias**
Former President of the European Central Bank (“ECB”) Mario Draghi identified, in his recent report on European competitiveness, an annual investment gap of €750-800 billion (around 4-5% of EU GDP) to decarbonize the economy and restore competitiveness in the European Union (“EU”). Current legal frameworks obstruct capital deployment through fragmented capital markets. This article dissects these barriers by exploring banking and finance law constraints on mobilizing private funds and examining regulatory fragmentation as a competition law distortion undermining the Treaty of the European Union (“TEU”).
Draghi’s investment target presupposes that Europe can mobilize private capital on a scale previously reserved for wartime or crisis reconstruction such as NextGenerationEU. Legal frameworks designed to stabilize banks and protect investors after the Euro and sovereign debt crises operate as bottlenecks, impeding cross-border risk‑sharing.
A key factor is the incompleteness of the Capital Markets Union (“CMU”). The CMU has produced technical measures but has fallen short of creating a genuinely integrated single market. Divergent insolvency regimes, tax treatment, and securities laws make cross‑border securitization or project bond issuance costly and legally complex, creating a high cost of capital for EU climate projects. Draghi’s call for a rebranded “Savings and Investments Union,” requiring treaty-level tax and insolvency harmonization, recognizes that current reforms have failed to mobilize Europe’s household savings.
Post‑crisis implementation of Basel III through the CRR/CRD framework has pushed European banks towards shorter‑tenor, lower‑risk exposures through strict large‑exposure rules and conservative interpretations of securitization. Prudential safeguards originally calibrated to constrain excessive leverage now combine with permitting uncertainty to impose disproportionately high capital charges on long‑dated green lending. EU‑level financial instruments mitigate but do not resolve these constraints. The European Investment Bank (“EIB”), rebranded as the EU’s “climate bank,” significantly increased its climate‑related lending to around €45–50 billion annually (close to 60% of its total lending), yet its public‑bank mandate, risk parameters and capital base limit its ability to absorb early‑stage and regulatory risk.
This leads directly to the regulatory infrastructure governing deployment. As long as permitting regimes and state aid rules remain nationally fragmented, capital will continue to flow disproportionately to jurisdictions with the most permissive or best‑resourced regimes, entrenching the intra‑EU distortions analyzed in the next section.
Regulatory fragmentation across Member States creates artificial barriers to entry that distort competition in green technology and infrastructure markets, undermining the very competitiveness Draghi seeks to restore. The permitting landscape exemplifies this distortion. According to energy think tank Ember’s 2024 analysis, amongst 18 countries analyzed for onshore wind projects, average permitting times exceeded the two-year EU legal limit in all cases,. Furthermore, Energy Monitor assesses that 81% of European renewable wind capacity is stuck in various permitting stages, surpassing the United States (79%), China (74%), and India (64%).
Significant divergence between Member States creates what competition economists would recognize as discriminatory regulatory barriers: Germany and Greece’s striking divergence in Wind Europe’s market development report, for example, is illustrated by Germany’s 7,851 onshore permits in H1 2025, compared to Greece’s mere 214 onshore permits for that same period. New entrants face disproportionate costs, undermining Article 3(3) TEU’s objective of a “highly competitive social market economy” by segmenting markets geographically. The European Commission’s TCTF, while ostensibly addressing competitiveness, has paradoxically entrenched competitive inequalities. Germany and France together account for 77% of the €672 billion in approved programs since March 2022, with Germany alone granted over €356 billion—53% of all extraordinary aid.
Draghi himself recognized this fragmentation risk in identifying “gold-plating,” namely the national over-implementation of EU directives, as problematic. Yet the TCTF’s design in allowing Member States to operate with flexibility, has produced precisely the market distortion that harmonized EU competition policy was meant to prevent. Draghi frames the investment target as both a climate necessity and an opportunity for economic growth. However, current legal frameworks produce the opposite effect: regulatory barriers fragment markets while state aid rules permit wealthy Member States to dominate.
Considering the EU’s predicament in clean technology manufacturing, the Union lacks sufficient industrial production capacity for net-zero technologies, with almost 90% of photovoltaic cells produced in China. Battery and wind power technology is also highly dependent on third countries. Yet permitting fragmentation prevents the rapid deployment needed to build domestic capacity at scale. This creates a vicious cycle: regulatory barriers procrastinate deployment, reducing orders for EU manufacturers, which in turn undermines competitiveness and prompts calls for state aid that further fragments the Single Market. Regulatory infrastructure reform is required to close Draghi’s €800 billion gap.
The question becomes whether EU institutional architecture can overcome this fragmentation. Two recent regulatory initiatives suggest potential pathways forward.
First, the Critical Raw Materials Act (“CRMA”), which entered into force in May 2024, established the European Critical Raw Materials Board. Although designed to simplify permitting, real-world implementation remains uneven since Member States maintain their own permitting structures. Nevertheless, the CRMA’s centralized governance offers a template that could be adapted for renewable energy infrastructure. The Act establishes non-binding benchmarks requiring the EU to mine 10% of its annual needs, process 40%, and recycle 25% by 2030, while setting a 65% limit on sourcing from any single third country.
Second and more ambitiously, Draghi’s proposal for “Renewable Acceleration Areas” with temporary exemptions from certain EU directives could reduce permitting times, but risks creating new geographic market distortions. The revised Renewable Energy Directive introduces such acceleration areas where permitting must occur within one year for new projects and six months for repowering, but application needs to be harmonized.
Renewable energy infrastructure, unlike trade measures, requires integration with national governance overall and environmental planning more specifically. The path forward likely requires hybrid governance with centralized standards for core permitting criteria and binding regulation, combined with Member State flexibility on local implementation details. This would mirror the CRMA’s approach while learning from the TCTF’s failures by replacing competitive subsidy races with coordinated EU financing mechanisms.
Bridging Draghi’s €800 billion climate investment gap requires integrated reforms of both financial markets and regulatory infrastructures. Completing the CMU and harmonizing permitting regimes through constructive EU legal frameworks are essential to delivering efficient capital deployment and eliminating ongoing competitive distortions. Closing the EU’s competitiveness gap with the US and China demands coordinated legal reforms, creating a level playing field for green investment. Achieving this transformation will require political will and boldness reminiscent of Draghi’s “whatever it takes” stance at the ECB.
* Stephanie Nahmia specializes in banking and finance law at First Bank UK, in London. She is a graduate of King’s College London and University College of London’s LLM program.
** Sam Namias specializes in EU competition law at Quinn Emanuel Urquhart & Sullivan’s Brussels office. He is a graduate of the University of Athens Law School and Columbia Law School’s LLM program.
