The European Union needs a much better coordinated industrial policy, faster decisions and massive investments if it wants to keep up with rivals the United States and China in the economy, according to the long-awaited report of the most respected European technocrat Mario Draghi.
Draghi, a former head of the European Central Bank and Italian prime minister, spent most of last year in Brussels at the request of European Commission President Ursula von der Leyen, working on a report on how the EU can maintain the competitiveness of its green and digitized economy at a time of heightened global tensions.
However, as the portal "Politiko" points out, there are indications that this report is much more than another bureaucratic exercise, but that it is about something reminiscent of a major reconstruction in the spirit of Soviet Perestroika or the American "New Deal" of the 1930s. .
At the heart of Draghi's report is a call for massive private and public investment not seen in Europe since the 1960s and 1970s. "The situation is very worrying at the moment," Draghi said at a press conference in Brussels. He outlined the tough choices EU leaders must face to prevent further economic decline and social unrest.
"Growth has been slowing down in Europe for a long time, but we ignored it... Now we can no longer ignore it. Now the conditions have changed", Dragi pointed out and added "if Europe does not become more productive, we will be forced to choose. We will not be able to become a leader in new technologies, a beacon of climate responsibility and an independent player on the world stage at the same time. We will not be able to finance our social model. We will have to scale back some, if not all, of our ambitious efforts.”
Trade protectionism is on the rise, there is no more cheap energy from Russia, the bloc has to pay more for its defense, and the population is shrinking, Reuters points out.
In a nearly 400-page report, Dragi stated that the bloc needs an investment of 750-800 billion euros per year, up to 5% of GDP, which is significantly more than even the 1-2% of EU GDP under the Marshall Plan for Reconstruction of Europe after the Second World War. And the block must act on several fronts.
"The choice is the following: do this or slow agony will follow," warned Dragi.
The report states that EU countries have already reacted to the new realities, but added that their effectiveness is limited by a lack of coordination. Different levels of subsidies between countries distorted the single market, fragmentation limited the scope needed for global competition, and the decision-making process in the EU was complex and slow.
The report proposes that so-called qualified majority voting - instead of unanimity - be extended to more areas, and as a final solution it is proposed that countries with a similar attitude be allowed to implement some projects independently.
While existing national or EU sources of funding will cover part of the huge investments needed, Dragi said that new sources of joint funding may be necessary, which, in the past, a number of countries led by Germany have been unwilling to agree to.
Analysts believe that the EU will probably delay the implementation of Draghi's proposals
German Finance Minister Christian Lindner has said that joint borrowing will not solve the EU's problems and that Germany - the largest economy in the 27-nation bloc - will not agree to it.
As the bloc prepares for the next five years with the new European Commission, Draghi's report aims to guide the work of Ursula von der Leyen and her renewed team. Many of his recommendations will require support from all 27 member governments of the bloc, which could be difficult to achieve.
Analysts believe that the EU will probably delay the implementation of Draghi's proposals.
"Political difficulties in Germany and France, as well as long-standing divisions among other EU members, will probably prevent a significant step forward in integration, which Dragi recommends," said analysts from Eurasia Europe.
"Furthermore, recent political developments in France, despite the appointment of Michel Barnier as Prime Minister last week, make us much more skeptical about the EU's capacity to deliver on significant fiscal ambitions..."
Draghi also pointed out in the report that EU antitrust regulators should approve mergers not only on the basis of competition within EU borders, but also on whether the takeover can spur innovation in sectors such as technology. Security and resilience should also be given more weight, he added.
The report also contained proposals for 10 economic sectors, including energy, artificial intelligence, pharmaceuticals and space.
Andrew Cunningham, chief economist at Capital Economics, said the report contained many sensible proposals but that many were unlikely to be adopted, as was the case with previous reports by former Italian prime ministers Enrique Letta this year and Mario Monti in 2010, which have "mostly fallen on barren ground".
EU growth has consistently been slower than that of the United States over the past two decades, with China quickly catching up. Much of the backlog was due to lower productivity.
Draghi said that if the EU were to maintain its average productivity growth since 2015, it would only be enough to keep GDP constant until 2050. However, the bloc needs more wealth to cover the costs of decarbonisation, digitalisation and defense strengthening.
Draghi's report comes at a time when the issues he raised - lack of investment, loss of cheap energy and changing demographics - are calling into question the economic model of Germany, the former growth engine of the EU. Volkswagen, the largest car manufacturer in Europe and one of the key industrial pillars of Germany, announced last Sunday that it is considering the possibility of the first closing of its factories in that country.
Draghi, who is credited with saving the eurozone from collapse during the height of the Greek debt crisis in 2011, said there was no other option but to implement dramatic reforms. "We must abandon the illusion that only procrastination can preserve consensus," said Dragi. "We have reached a point where, without action, we must either jeopardize our social protection, our environment or our freedom."
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