In business, politics and our personal lives, urgent radical reform is often necessary to avoid catastrophic developments. Experience teaches us that when this time comes, many procrastinate, preferring to manage the status quo rather than bite the bullet and make radical reforms.
Economic history is full of examples of how once-mighty multinational companies failed to see the risks posed by developments in the market they operated in, decided to continue living in their comfort zone and failed to undertake radical reengineering of their business model. Kodak, Xerox, Nokia, IBM, Motorola and Thomas Cook were once household names that many trusted. Some ceased to exist. Others were reduced in size and lost their former glory.
Political life is just as hazardous. The Italian political system, for instance, is the best example of how once-dominant parties like the Communists, Socialists and Christian Democrats (Democrazia Cristiana) failed to undertake reforms and became irrelevant. Of course, the Italians, like other Europeans, have a way of recycling politicians by spawning new parties that may have a short shelf life but serve a purpose in the short term.
Unfortunately, as an institution, the Catholic Church also struggles to reform itself radically despite the brave efforts to bring about change by some popes, like John XXIII and Francis. While still an instrument for promoting humanistic values, the Catholic Church, like many Protestant churches, no longer wields the moral power it once had.
What many find most worrying, however, is how Europe is crumbling in its standing in global politics.
The EU, in particular, was never much more than a functioning common market, certainly not a superpower. The Union never was, and will never be, a political superpower. Today, it resembles more a Tower of Babel, with every national leader laser-focused on narrow domestic issues. The political humiliations that Russia and the US are imposing on Europe are hurtful but hardly undeserving.
The EU’s obsession with consensus, overregulation and unwillingness to undertake radical economic and governance reform will cause the Union to face a long, terminal agony. There is no shortage of expert diagnoses of what is wrong with the EU’s governance, defence, economics and social development strategies.
One needs to read Mario Draghi’s recent op-ed in the Financial Times. In the context of the US-imposed tariffs, he provokingly, but correctly, states that Europe has successfully ‘imposed tariffs on itself’. Draghi adds that “radical change is necessary”, insisting that Europe has to invest more in developing the internal market and reduce its dependence on exports.
Europe continues to lag behind the US and China in productive investment. It also needs to address overregulation mania and dismantle the internal barriers to trade that are restricting internal organic growth.
EU’s obsession with consensus, overregulation and unwillingness to undertake radical economic and governance reform will cause the Union to face a long, terminal agony
For too long, the EU’s industrial giants, especially Germany and Italy, have relied on exports to China and the US, supported by the availability of relatively cheap energy products from Russia. Most European businesses supply chain models are now broken.
A shortage of skilled labour due to failed educational and labour market policies and a changing geopolitical scenario is leading to most member states having their backs against the wall.
To add to the list of urgent radical reforms on the EU leaders’ to-do list is the need to beef up the defence sector. The concept of consensus at all costs is obsolete, even if the smaller member states continue to insist on it remaining an irremovable cornerstone of the Union.
Equally not fit for purpose is the Union’s defence strategy. If Europe wants to project itself as a superpower committed to defending its populations and offering its citizens adequate social, economic, health and labour market protection, it must engage in a radical reform in how it governs itself.
At the latest Davos annual gathering, ECB president Christine Lagarde argued: “We have a lot of assets, but we’re shooting ourselves in the foot many times because we do not complete the work we set out to do.”
Will the national leaders listen to Draghi, Lagarde or even Zelensky, on why radical reform in economics, defence, trade, investment and governance is urgent?
I fear this is just a pious hope that will likely prove too elusive. The European Commission has no time to spare. It must find answers to the questions that non-political leaders have raised about the economic model of the Union, its investment strategies and its defence programmes, and how radical reforms will be financed.
Sadly, the Goldilocks scenario that EU politicians want us to believe in is a mirage.