The diagnosis is scathing and the medicine is strong. The report released by Mario Draghi in Brussels on 9 September, ‘The future of European competitiveness’, warns the European Union that it faces lasting sluggish economic growth – which could end up threatening Europeans’ prosperity and social welfare.
Draghi’s report highlights three ways ‘to reignite growth’: Closing the innovation gap with the US and China in key technologies; seizing opportunities from the ongoing global decarbonization process; and securing supply chains from geopolitical dependencies, that risk turning into vulnerabilities.
The nearly 400-page document recommends both sectoral (energy, pharma, AI, transport) and horizontal (innovation, skills, governance) policies to ensure the EU remains competitive with the US and China in the future.
The overall strategy requires urgent, massive, concrete, joint efforts by EU countries, including enormous financial commitments. To boost growth and productivity gains, Draghi considers the bloc needs both public and private investments of €750-800 billion (£630-675 billion) per year, that is up to 5 per cent of the EU’s total GDP. As much as €450 billion of this would go toward the energy transition. As a comparison, 1-2 per cent of GDP was spent annually during the Marshall Plan (1948-1951).
More than money
But Draghi’s strategy does not just come down to money. It advocates a new stance towards cooperation by coordinating policies, cutting red tape and better respecting the principle of subsidiarity so that the EU remains focused on areas where it most adds value.
The strategy also advocates reforming competition law to facilitate mergers of European corporations. In 2019, the European Commission prohibited Siemens’ proposed acquisition of Alstom in the high-speed train sector. But Draghi argues that economic security should be considered when reviewing mergers, as fierce Chinese competition calls for bigger European industrial champions.
The report’s alarming assessment is not new and widely acknowledged as accurate. But it is a dramatic intervention to raise political awareness of what is at stake: unite and act now, as Draghi says, or face ‘a slow agony’. That echoes Macron’s second Sorbonne speech last April on Europe’s ‘mortal risk ’. This wake-up call comes just at the beginning of a new five-year institutional cycle following the European elections.
Coupled with Enrico Letta’s Report on the future of the Single Market, presented in April 2024, the Draghi Report will undoubtedly shape the next European Commission’s agenda. Its ideas are expected to appear in the mission letters which will be sent to the newly appointed commissioners.
And Commission President Ursula von der Leyen, who ordered the report, intends to take advantage of the author’s indisputable reputation to give her forthcoming priorities more political bite.
Leadership vacuum
This still may not be enough to spur reforms. The report immediately received positive support from different political groups in the European Parliament. But it is released during a time of a leadership vacuum. France’s influence in the EU has waned because of Macron’s recent political defeats, governing instability and poor public finances.
In Germany, Olaf Scholz’s authority has been undermined by his coalition’s poor showing in this year’s European and regional elections. Thus the Franco-German engine is stalled when it is needed to give Draghi’s roadmap political impetus.
Yet, even in better circumstances, the report could never be implemented easily. It crosses too many red lines at once for European heads of state to simply endorse it.
Draghi’s push for a new debt issuance, inspired by the COVID-recovery plan (NextGenEU), is traditionally a no-go for Germany and the Netherlands.
The German finance minister, Christian Lindner, immediately blocked the idea – Von der Leyen did not back it either. More ‘own resources ’ to finance the EU budget also remains very controversial, whatever the political landscape – as does reforming the energy market by decoupling the prices of renewables from fossil fuels.
The old project to complete a capital markets union (also revived by the Letta Report) keeps being blocked by small member states. And the suggestion of extending qualified majority voting to more policy areas always raises eyebrows among the EU 27.
The future of the report
The report faces two upcoming political tests. First, the informal European Council on 7 November in Budapest will see Draghi present his recommendations right after the US presidential election, the outcome of which may reset the political mood in the EU. Expect ‘Super Mario’ to pressure leaders directly on the urgent need to take bold action.
A second and more concrete signal on how seriously the report is taken will come during negotiations on the next multiannual financial framework (MFF), that shapes the EU budget for the period 2028-2034. A first draft is expected next year.
The budget’s size, its resources and the depth of the reshuffling of its main expenditures will show if the report has succeeded in making the EU more ambitious.
