Have the article read by OpenAI (Beta). Please note that AI translations may take some time to process.Mario Draghi’s report takes a stern look at the status quo of the European Union’s economy, calling for more investment and faster decision-making.
The former Italian prime minister acknowledged the ambition of his proposals which would represent a bigger boost than the post-World War II Marshall Plan to rebuild Europe, arguing that it was justified by an “existential challenge” facing the bloc.
The blueprint for competitiveness, based around some 170 proposals, recommends a yearly investment of 750 to 800 billion Euro, joint debts and reforms to combat lagging behind competitors such as the USA and China.
He stated that “the only way to become more productive is for Europe to radically change” but concerns about feasibility, funding and the impact on the bloc’s competitive future remain.
European Commission President Ursula von der Leyen, who in July secured a second five-year term at the helm of the bloc’s executive arm, hopes to use the 400-page report to shape the priorities of her cabinet. She had commissioned the report last year.
First discussions on the report will follow in October, said Croatian Prime Minister Andrej Plenković.
What does Draghi want?
Draghi called for more investments in research and innovation, clean energy technologies, and faster regulatory decision-making and “a new industrial strategy for Europe”.
“We have reached the point where, without action, we will have to either compromise our welfare, our environment or our freedom,” he said in a press conference in Brussels. “It’s going to be a slow agony.”
European Central Bank (ECB) chief Christine Lagarde said the report was “severe” but “just”, adding that the proposals in the report could help the ECB “achieve better results in our monetary policy”.
“Mario Draghi’s report on European competitiveness is logical and takes a good look at the global situation,” Croatian premier Andrej Plenković said.
Productive tech: Draghi, a former president of the ECB, wants the bloc to close its innovation gap with the United States, highlighting the major advantage Washington holds in the high-tech sector.
In the US economy, “most of the productivity is concentrated in the high-tech sector”, Draghi said, noting that when tech is removed for comparison, the EU’s economic productivity has performed better.
Draghi wants the EU to reduce regulations and ease compliance for tech entrepreneurs, especially smaller enterprises, as well as to boost financing options for companies to expand.
Decarbonisation versus growth: The EU must also use its status as a “world leader in clean technologies” like wind turbines to achieve new growth through policies to reduce carbon emissions, Draghi said.
He warned in his report, however, that if policy is not coordinated correctly, then “decarbonization could run contrary to competitiveness and growth”.
The former Italian premier also warned of an overreliance on China and that “China’s state-sponsored competition” is also a threat to the EU’s clean technology and automotive industries.
According to Draghi, “emulating the US approach of systematically shutting out Chinese technology” would set back the EU’s transition away from fossil fuels and impose higher costs on the economy.
Foreign economic policy: Drawing comparisons with the US and China, Draghi called on the bloc to develop a “foreign economic policy” to craft more preferential trade agreements, build stockpiles of strategic raw materials, and secure supply chains of critical technologies.
Draghi pointed out that “unlike fossil fuels, the EU has deposits of some essential raw materials”, highlighting the case of lithium in Portugal, which can be used for electric vehicles, wind turbines and other goods.
However, at the moment, “the EU continues to rely heavily on imports of raw materials instead of exploiting domestic resources”, he criticised. Lithium is an essential part of the lithium-ion batteries used in electric vehicles, demand for which has increased rapidly in recent years and is expected to reach more than 30 percent of annual vehicle sales by 2030.
Portugal is known as the largest and, in fact, the only significant lithium production site in the EU, but such exploitation is not without controversy. Geologists warn of the environmental impacts.
More broadly, Draghi called for greater joint procurement in defence, easing competition rules in the telecoms market to allow more consolidation and deepening capital markets to boost investments.
The money question
To achieve new economic growth, the EU needs to invest the equivalent of 4.4 to 4.7 percent of the EU’s gross domestic product (GDP) in 2023, between 750 to 800 billion Euro annually.
Investments should be partly financed by the European Union through joint borrowing modelled after its historic NextGenerationEU instrument designed for recovery from the Covid-19 pandemic, said Draghi. The EU resorted to joint borrowing for an 800-billion-Euro fund to support member states’ economies hit hard by the pandemic, but the concept remains controversial.
Draghi said the bloc should issue new “common debt instruments… to finance joint investment projects that will increase the EU’s competitiveness and security”.
Among the idea’s biggest supporters are France and Italy, but other countries including Germany and the Netherlands oppose such action, fearing they will be forced to contribute disproportionately to other member states.
German Finance Minister Christian Lindner was quick to reject the idea. “Joint borrowing by the EU will not solve the structural problems,” he said.
Aware of the opposition to his proposal, Draghi said common loans would be possible only if “the political and institutional conditions are met”.
Belgian MEP Bruno Tobback, a member of the Industry committee in the European Parliament, said there is a need for new public money to pay for the transition. “If the member states lend together, they minimise their risks, they are being offered more financial breathing space and they receive a big stimulus for their economy,” Tobback said.
However, many economists and policy experts agree that despite the report’s ambitious goals, implementation may fall short.
If the EU wants to reduce its dependence on China and catch up with the US then “27 different industrial strategies won’t do the job”, Neil Makaroff, a director with Strategic Perspectives, a European climate think tank said in a statement.
The European Parliament’s budget committee president and former Belgian finance minister Johan Van Overtveldt pointed to the fact that the issuance of “common safe assets” as Draghi calls them is typical for a fully-fledged state, but that the EU is not quite there yet. He said fresh money can be found by cutting back on some expenditures and by increasing member states’ direct contributions to the EU budget. Van Overtveldt is also eyeing the completion of the Capital Markets Union, as it can guarantee “a big return on investment”, so he claims.
Marko Jaklič, a professor at the Faculty of Economics at the University of Ljubljana, argued in a similar fashion: “I am quite sceptical, there are certainly economic reasons for joint investment and also financing, but I am not sure that the political maturity is there yet. I will be positively surprised if the new European Commission shows that it is capable of convincing member states.”
“The report is not an ideal recipe for every country, but it is a pretty good recipe for encouraging the development of European multinationals,” said Bojan Ivanc, chief economist at the Slovenian Chamber of Commerce and Industry.
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