Many are not used to politicians discussing the existential threats faced by the EU and other European countries like the UK. They prefer to sweep these threats under the proverbial carpet and focus on issues that could win them the next election. It is, therefore, refreshing to occasionally read an honest and blunt report on what must be done to save the old continent from global irrelevance.
Mario Draghi needs no introduction. He is one of the European clear thinkers who is respected by many and hated by some, especially by Eurocrats. He has no political ambitions but is not afraid to tell off politicians politely and uses refreshingly direct language when they mess up.
In his 400-page report on EU competitiveness, Draghi explains in detail what needs to be done to resurrect the Union from its comatose economic existence. It is a must-read for all those interested in and concerned about the future of the old continent.
In his report, Draghi argues that growth in Europe has been slowing for decades. He mentions some indicators that confirm this decline. Still, the most convincing one, which many can easily understand, is that “Europe’s households have paid the price in foregone living standards. On a per-person basis, real disposable income has grown almost twice as much in America as in the EU since 2000”.
Draghi urges the EU to close the innovation gap between the US and China, arguing that “the EU remains weak in the emerging technologies that will drive future growth. European companies specialise in mature technologies with limited potential for breakthroughs”.
There is no lack of rhetoric in EU member states about supporting SMEs, but the focus is mainly on financing enterprises in traditional economic activities. This is not what venture capital investment should look like.
Draghi proposes a fundamental reform of the innovation lifecycle, from making it easier for researchers to commercialise ideas to joint public investment in breakthrough technologies, removing barriers to scaling up for innovative companies, and investing in computing and connectivity infrastructure to lower the cost of developing AI. This is indeed a tall order that raised the question of how his innovation drive should be financed.
According to Draghi, the EU will need an investment pot of up to €800 billion to kickstart this innovation process. This would be equivalent to five per cent of the EU’s GDP. This investment would be more than double that of the Marshall Plan, which helped Europe achieve the economic miracle after World War II.
Experts widely share his [Draghi’s] diagnosis of the continent’s economic afflictions. However, the cure will likely remain elusive. The patient has other priorities
If Draghi’s report is to be faulted, it is in the author’s overoptimism about the European leaders’ competence and willingness to make this investment a reality. Such an investment would have to be financed by the EU member states’ joint borrowing, just as was done to deal with the COVID-19 emergency.
Less than three hours had passed after Draghi finished his presentation to the European Parliament before Germany’s Finance Minister Christian Lindner said that “Germany will not agree” to joint borrowing to finance this investment.
Countries like Germany and the Netherlands have long resisted the notion of EU joint borrowing because they believe that the fiscal management of the southern member states is wasteful and threatens the well-being of taxpayers in more disciplined northern states.
Many understandably argue that the EU’s comitology, the set of procedures through which the European Commission exercises the implementation of powers conferred on it by the EU, is a significant obstacle to seeing Draghi’s recommendations taken up and implemented over the next decade.
The EU legislative process is cumbersome, slow, and held up by a dissenting minority at every turn. European Council meetings often take the form of horse-trading sessions, even if they are always followed by mellifluous declarations of unity crafted by anonymous word craftsmen.
Draghi knows how to improve things but is also just as convinced that he probably cannot. Experts widely share his diagnosis of the continent’s economic afflictions. However, the cure will likely remain elusive. The patient has other priorities.
The EU’s governance framework remains outdated and no longer fits its purpose. EU leaders are more interested in achieving their national objectives rather than being inspired by the advantages of being a part of an economic and political Union that can compete successfully with the US and China.
Draghi poignantly argues: “Europe can no longer afford procrastination to preserve consensus. The EU has reached a point where, without action, it will have to compromise either its welfare, the environment, or its freedom.”