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Europe must undergo fundamental reforms and increase investment to catch up with the United States or face painful decline. That is the message of former European Central Bank President Mario Draghi’s report, which EU leaders will discuss on Friday.
Draghi identified a patchwork of challenges facing the European Union, including slowing economic growth, slowing productivity, low innovation and increasing dependence on other countries for critical raw materials, including China.
In a 400-page report released in September, Draghi is particularly concerned about the widening gap between the United States and Europe in areas such as economic output and innovation.
Italy’s former prime minister called for a “new industrial strategy for Europe” with up to 800 billion euros ($863 billion) in additional investment a year and fundamental policy changes.
For Draghi, the report is an antidote to avoiding the “slow pain” of Europe’s decline.
Below are some of President Draghi’s recommendations.
Draghi warned Europe that the world was entering a new era of trade policy and that European countries were “already adapting”, but also warned of the “pitfalls of protectionism”.
This warning was issued even before Donald Trump took back the White House.
The EU has new tools to tackle thorny trade issues, building on the lessons of President Trump’s first term in 2017, but Draghi said using them was “pragmatic and the EU’s “It must be aligned with the overarching goal of increasing productivity growth.”
Draghi called on Brussels to take a cautious “case-by-case” approach and deploy “defensive trade measures” to level the playing field and secure vital supply chains.
One word that appears frequently in the report is innovation, with Draghi particularly urging Europe to close its “innovation gap” with the United States and China.
However, innovation in technology requires large amounts of capital, meaning that only the largest companies can afford to take the risks needed to innovate.
President Draghi’s answer? Europe should look at mergers between companies from a different perspective and “assess how the proposed concentration will affect future innovation possibilities.”
But in return, the merging companies will have to commit to investments that will be monitored by the EU to “prevent inappropriate use” of “innovation defences”.
The focus of this investment will also extend to the telecommunications sector. Draghi has recommended “facilitating” carrier mergers at European level to boost network investment.
Draghi said Europe’s financial needs were “huge” to meet the report’s objectives.
Funding the EU’s green and digital transition, as well as its larger defense needs, will require an additional investment of between €750 billion and €800 billion per year.
And he placed responsibility for financing investment on both the public and private sectors.
“Without public sector support, the private sector will not be able to take on the lion’s share of investment financing,” the report said.
Draghi raised the idea of joint borrowing with support from France. However, other countries, including Germany, strongly oppose the common debt, fearing that it would force them to contribute disproportionately more than other countries.
Citing the EU’s historic 800 billion euro coronavirus recovery fund, Draghi said common borrowing could be used to “finance joint investment projects that increase the EU’s competitiveness and security.” said.
According to Draghi, there is a large amount of untapped capital in the European economy.
European households have billions of euros more in savings than in the US, but it is “not effectively channeled into productive investments”.
One solution to this is that the EU must move forward with plans to build a capital markets union that can better mobilize private capital within the 27-nation bloc.
Draghi also wants to encourage individual Europeans to invest in private pension funds and establish a joint authority to oversee the market.
This push is consistent with the report’s overall theme of greater integration. For example, Draghi wants the EU to strengthen joint defense procurement.
“We collectively have significant purchasing power, but we dilute it across several different national and EU instruments,” he wrote.
At a time when the EU wants its companies to prosper and prosper, European companies are instead suffering from an “increasing regulatory weight,” Draghi wrote.
The report identified three main obstacles: overlapping and inconsistent rules, the additional burden of fragmented regulation across the bloc, and legislation that imposes a “proportionately greater burden” on small and medium-sized businesses in particular.
He noted that the EU’s efforts to streamline rules have had a “limited impact so far.”
Raz/EC/CW
