FRIEDRICH-EBERT-STIFTUNG – AN EU FUTURE FUND: WHY AND HOW? 1 INTRODUCTION In response to the climate crisis, new geo-economic challenges and the rise of radical right-wing forces in Europe we urgently need new EU funding instru­ments to manage the socio-economic transforma­tion from 2027 at the latest. That is the only way to close growing investment gaps in the context of the transformation and prevent social divisions. The idea of an investment fund at EU level developed in this paper would offer concrete economic benefits through the trans­national integration of the Single Market, substantial effi­ciency gains and economies of scale, and thus could use­fully supplement national support measures in response to the transformation. Without a massive shift in investment policy it is clear that the decarbonisation of the EU econo­my will lag behind in the face of a deteriorating climate cri­sis and in competition with the United States and China. Furthermore, the German economy cannot go it alone. Without active accompanying measures the overwhelm­ingly regulatory and market-based instruments of Europe­an climate and transformation policy will prove increasing­ly socially unacceptable and only further exacerbate exist­ing social and regional inequalities. That would impair the competitiveness and cohesion of the Single Market, which is so crucial for Germany, and could further boost an­ti-democratic forces in Germany and Europe, who are al­ready making political gains on the back of frustrations with what is framed as an elitist and harmful market-driv­en transformation. The creation of an EU Future Fund is a matter of ur­gency, for three reasons in particular: need an EU Future Fund to achieve a robust fi­nancial basis for the socio-economic restructuring of European economies . The bulk of the transforma­tion will be driven by private investments, but the state will also have a major role to play, not least because complementary public investments and public subsidies help to improve the basic conditions for private invest­ments that hitherto have not been economically viable. Because an investment-friendly reform of European fis­cal rules has failed to materialise a lot more resources need to be made available at the European level to close green funding gaps. In the context of(German and) Eu­ropean fiscal rules the European level has a key role to play in solving current financing problems, especially for strategic tasks, which also contribute to fiscal sustain­ability. Climate protection is a European public good (Buti/­Coloccia/Messori 2023; Van den Noord 2024) and investments in the Energy Union, in the medium term, lower energy prices, inflation and debt levels(Wildauer/ Leitch/Kapeller 2021) . The restructuring of our econo­mies and climate goals can be achieved and funded much more easily through a coordinated European ap­proach than by nation-states trying to go it alone. EU Future Fund is needed in order to ensure the unity and global competitiveness of the Single Market and to avoid distortions of competition within the EU . Otherwise, going forward, only large Member States and those with sufficient resources will continue to actively support their industries with invest­ment. The upshot would be an increase in economic di­vergence to the detriment of more vulnerable countries and their enterprises(di Carlo/Hassel/Höpner 2023). Similarly, from a business standpoint, a fragmentation of the Single Market might ensue, which would under­mine its efficiency in geoeconomic competition as an integrated market on a continental scale. (iii) A n EU Future Fund offers EU citizens a convincing answer to the ever-growing right-wing populist resistance to transformation and could thus coun­teract looming autocratisation in the EU. To date, the transformation has had socially unacceptable con­sequences in many areas. These include private conver­sion costs, job losses, relocations, and a decline in col­lective bargaining coverage. Many people remain un­convinced by EU and German government climate poli­cy. The current transformation policy approach is play­ing into the hands of right-wing populist and extreme right forces, who have been able to exploit uncertainty and lack of prospects in some parts of the population for their own purposes, both in Germany and in other EU Member States. In light of the next phase of emis­sions trading from 2026 and pressures for a return to fiscal consolidation, particularly from 2025, the Euro­zone faces exacerbated distributive conflicts in the next few years during economically tough times. In the worst case, these developments could lead to the disintegra­tion of the Single Market, which would also – and espe­cially – hit Germany hard economically. 2