Article by Marilisa Marigliano and Katy Wiese
Europe likes to present its green and industrial ambitions as bold and transformative. From clean tech and semiconductors to strategic autonomy and defence, the European Union promises massive investment to secure its future. But behind the headlines, a quieter shift is taking place. One that risks undermining democratic control, climate ambition, and social justice.
That shift is called “derisking”. At first glance, it sounds like a technical financial adjustment. In reality, it is a political choice about who carries the risk, who collects the rewards, and who gets to decide what Europe invests in.
Derisking is quickly becoming the default operating system of EU industrial policy. The proposed European Competitiveness Fund in the next Multiannual Financial Framework would merge existing financial instruments into a single investment vehicle to support industrial productivity, strategic autonomy, and defence. This interlinking is not accidental. It is a signal of where public money, and public power, is being redirected.
In recent years, the language of “competitiveness” has steadily absorbed security and defence concerns. Investments in semiconductors, critical raw materials, digital infrastructure and advanced manufacturing are justified not only in terms of decarbonisation and innovation, but also in terms of geopolitical resilience and military readiness. The war in Ukraine and escalating global tensions have accelerated this shift, allowing defence spending to be presented as both inevitable and strategic for European economic growth.
Derisking plays a crucial role in this dynamic. Public guarantees and blended finance mechanisms make defence-related research, dual-use technologies and military-industrial supply chains more attractive to private investors. What was once politically contentious — subsidising arms production or military infrastructure — is now embedded within broader industrial policy frameworks. As a result, the boundaries between climate policy, industrial transformation and militarisation are becoming increasingly blurred.
What does derisking really mean?
Derisking is when public institutions step in to safeguard the profitability of specific projects and ultimately to incentivise private investors to “crowd in” their resources. Governments and EU bodies offer different kinds of tools, including guarantees, insurance, blended finance, or public–private partnerships, to reassure investors that if things go wrong, public money will absorb the losses.
Put simply: if the project fails, the public pays. If it succeeds, profits stay private.
The logic can be found in between the lines of many public speeches of European political leaders: public resources are not enough to cover all the investment needs, so private investors must tap in to fill the gaps.
But how to get private capital to come out of the deep pockets of financial markets? Public money must be used to act as a safety net. Private investors are often reluctant to invest in areas deemed risky, such as research and innovation, or not immediately profitable, such as green infrastructure (e.g. large-scale renewable energy infrastructure). In theory, this “crowds in” private finance to serve public goals. In practice, it often does something else entirely.
Too often, de-risking becomes a subsidy for business-as-usual with little democratic oversight and weak conditions for public benefit. Derisking rarely comes with strong conditions on public benefit, environmental outcomes, affordability, or democratic oversight. Instead of expanding public capacity, it shifts risk from private investors onto taxpayers while leaving profits firmly in private hands.
When “partnerships” mean higher costs and weaker accountability
Public–Private Partnerships (PPPs), one of the most common derisking tools, illustrate the risks inherent in such approaches. Across Europe, PPPs have repeatedly delivered higher costs, delays, and weaker accountability. The costs ultimately fall on the public, often with added interest, profit margins, and compensation for “risk transfer” that never truly occurs. In France, water PPPs led to prices more than 16% higher than publicly run services. An EU audit of transport and ICT PPPs found cost overruns, delays of up to six years, and inflated demand forecasts that left infrastructure underused.
Budgetary guarantees are also a central part of this approach, while direct public investment remains limited. The European Investment Bank plans to invest €70 billion in technology between 2025 and 2027 while aiming to mobilise €250 billion in private capital.
This is how EU leaders can claim “ambition” without confronting a harder question: who decides what gets funded? It determines who bears the risks, who reaps the rewards and who ultimately shapes what Europe invests in.
From austerity tool to governing logic
Derisking did not emerge by accident. It gained prominence during the years of fiscal austerity, when governments were told that public investment was fiscally unsustainable while vast reserves of dormant private capital could be mobilised from financial markets. The story was simple: public budgets are constrained, but private finance stands ready, if only risks are sufficiently reduced.
International institutions promoted this idea under banners like the G20’s “Infrastructure as an Asset Class” or the World Bank’s “Maximising Finance for Development”. In the EU, it became institutionalised with the Juncker Plan and the creation of the European Fund for Strategic Investments (EFSI) in 2015, later consolidated under InvestEU. For the first time, EU-level investment policy was explicitly designed around the idea of “leverage”: using limited public guarantees to unlock large volumes of private capital.
The appeal was clear. The EU could promise hundreds of billions in investment without expanding its budget or revising restrictive fiscal rules. But the political cost was substantial. Public priorities became increasingly shaped by what financial markets considered “bankable.”
When investment decisions hinge on private profitability, essential projects that generate low or long-term returns struggle to attract funding — including investments in research and innovation, energy efficiency, decarbonisation, circular manufacturing, and social and care infrastructure. Evidence suggests that private capital can cover only a fraction of the investment required for climate mitigation and adaptation. Derisking does not necessarily expand productive capacity; instead, it reallocates investment risk from private actors to the public while protecting short-term returns.
At the same time, derisking reshapes governance. Investment decisions increasingly sit with financial institutions and large asset managers, often operating as intermediaries of public development banks behind closed doors. Civil society, trade unions, municipalities — and even the European Parliament — have limited influence over which projects are funded, under what conditions, and who ultimately benefits.
Deregulation is the other half of the model
Deregulation forms the other side of the same model. Relaxed state aid rules, weakened social and environmental safeguards, and accelerated permitting procedures — all justified in the name of “investment friendliness” — consolidate a political economy in which public institutions absorb risk while relinquishing meaningful political control
Ironically, although the Parliament co-decides the EU budget, it has comparatively little control over the financial instruments that leverage that same budget to guarantee private investments. Programs such as InvestEU empower public and private financial actors to lead the allocation of resources, while democratically elected institutions are largely confined to ex-post monitoring — a role further weakened by ongoing deregulation. A concern recently shared by the European Court of Auditors, which recently warned the push for “simplification” must not come at the expense of transparency and traceability of public money.
Socialised risk, privatised profit
While claiming to be complementary with other forms of public and private finance, EU public guarantees seem to subsidise investments that were already profitable. This is not about technicalities, it goes to the heart of accountability. The European Court of Auditors has shown that many EFSI-backed projects would likely have gone ahead even without EU guarantees. Similar doubts emerge when screening InvestEU. A survey conducted with a sample of beneficiaries suggests that many InvestEU-backed projects would have proceeded anyway, and that recipient companies had in fact successfully obtained other forms of private and public financing.
The pattern is clear: risk is absorbed publicly, returns are extracted privately, and democratic control is weakened.
“Exceptional times require exceptional measures”
The problem is not that Europe invests too much. As Mario Draghi’s report makes clear, Europe’s challenge is that it invests too little: the EU would need around €750–€800 billion in additional annual investment to meet its climate, innovation and competitiveness goals, and even with deeper capital markets, more public investment, including joint EU financing, will be necessary to close this gap.
But the answer cannot be to guarantee private profit as the price of action. Alternatives exist. Europe could reform its fiscal rules again to treat green and social investments as essential priorities and not as deficits to be minimised. Tools to temporarily achieve such objectives also exist – national escape clauses are being activated to boost military expenditures. It is a matter of political choice when (and for what) these tools are used.
EU-level funds financed through progressive taxation, such as wealth taxes or windfall levies, could provide stable, predictable financing aligned with public priorities. The European Social Fund, which will be financed by the revenues of the European Trading System (ETS) 2, is a step taken in the right direction. Nevertheless, the push for deregulation coming from high polluting industrial sectors risks undermining even this founding pillar of European climate policy.
Public investment banks could finance projects directly, without guaranteeing private profit. The European Investment Bank has an enormous investment capacity. EU bonds — successfully used during the pandemic — could once again fund collective transformation. Public–common partnerships could strengthen meaningful engagement of public actors in the selection and appraisal of green and social projects instead of outsourcing control through PPPs.
Crucially, democratic governance must be rebuilt into investment decisions. Communities, workers, and local authorities should help define what counts as “strategic”.
Derisking is often presented as inevitable, pragmatic, even neutral. It is none of these things. It is a political choice to use the supposedly scarce public resources to secure high returns to private investors, instead of fostering the transformative change of the European economy that is needed. The public is just expected to bear the consequences: no access to affordable and green public services and increased debt to be paid by future generations to fuel the war machine.
Whether Europe has ever been serious about a bold transformation of its economy towards a green transition grounded in social justice is an open discussion. If it is the case, times are changing, and agendas have rapidly adapted to it – and new discussions should be opened on how to resist the trends unfolding before our eyes. If a truly just transition has to be achieved, private profits cannot be prioritised over public benefits. Starting to invest in green public goods is just the first step to take.
