The Draghi Report: Whatever It Takes to Increase European Competitiveness
It is often said that by declaring that he would do “whatever it takes”, the then President of the European Central Bank, Mario Draghi, saved the Eurozone from the financial and sovereign debt crisis of 2012. His solutions for reviving the growth of the Union’s competitiveness European (EU) are presented in a much larger document (400 pages), published last week, but the general principle is the same: “whatever it takes” must be done. This organization needs, he claims, a “new industrial strategy” to stimulate economic growth, which involves additional investments of 800 billion euros annually. The amount represents 4.7% of GDP, more than double the American aid received by European economies through the Marshall Plan. But it is an “existential challenge”.
The author is right about the magnitude of the challenge. Although it has a competitive economy (its share in global GDP is 17%), the EU is on a par with China and surpassed by the US (26%). The European market is open and has a solid legal framework that allows the integration of advanced European economies, protects the rights of employees and ensures good working conditions. Also, wage inequality in the EU is the lowest in the world. However, investors believe that the EU has an over-regulated single market, where companies are taxed unequally by member states, and macroeconomic policy decision-making is cumbersome.
In this framework, Draghi extensively analyses various economic processes taking place in the EU. It has experienced a slowdown in economic growth since the beginning of this century, as a result of slower productivity growth compared to the US. The phenomenon affected citizens’ living standards, with the average per capita income in the EU growing between 2000 and 2024 almost twice as slowly as in the US. To these, other frightening developments are added: the accentuation of geopolitical instability, the aging of the population, the depletion of traditional energy sources and the increase of technological difficulties. All this requires urgent measures to stimulate labour productivity growth and support long-term economic development. There is also a need to reduce regulations, which make the EU an area where companies, especially SMEs, are suffocated, not supported.
The mentioned developments show that a change in the European economic model is necessary. The US spends enormously on the development of clean technology industries.
In the EU, imports of cheap green technology from China have given rise to fears of deindustrialisation, particularly of Germany – Europe’s largest economy. The trade war with China and the possibility of D. Trump obtaining a second term as US president and applying the protectionist measures he promised in the election campaign threaten European exports.
The report criticizes the EU for its failure to capitalize on the advantages of the single market, which is the cause of its main economic problems. Indeed, if national legislations on financial markets, securities, payment methods and instruments, etc., were to be agreed, the EU could have funds of several billion euros to finance investments and support economic growth.
Productivity growth in the EU is also hindered by excessive bureaucracy and legal provisions, which differ from country to country. Finally, the EU’s economic growth could be supported by the easing of trade frictions between member states.
The report makes a number of useful, though not all new, recommendations for the EU to take full advantage of the opportunities offered by the digitization of the economy and the green transition. These measures mainly concern the integration of capital markets through the centralization of financial market supervision, the development of common investment funds and the alignment and rationalization of industrial, trade and competition regulations. A push for closer cooperation on energy, innovation and national security is also needed.
The solutions are, therefore, multiple, but they are neither easy, nor populist, nor short-term. Anyway, Draghi’s proposals reflect a concept – “sustainable competitiveness” –, which the EU should implement in three main areas: 1) reducing the innovation gap; 2) decarbonization of the industry, without affecting competitiveness; and 3) strengthening security by reducing the EU’s dependence on third countries, including through investment in defence, absolutely necessary in a period of instability, where dependencies become geopolitical vulnerabilities.
In conclusion, the EU must focus on innovation and the creation of advanced technologies, develop a coherent plan for the decarbonisation of industry and the economy in general, and strengthen its security by coordinating the foreign policies of its member states. All these directions of action are essential for the development of the industry, the stimulation of economic growth and the provision of geopolitical security, in the conditions of the increasing risks of the current period. And these directions are to the advantage of Romania as well, which can fully benefit from the mentioned concept of “sustainable competitiveness”.
Draghi’s recommendations give European Commission President Ursula von der Leyen – who commissioned the report – a valuable guide to action for her new mandate. The real challenge, however, will be the application of these measures. First, the two largest EU member states – France and Germany – have unstable coalition governments, which could hinder any progress in solving problems at the EU level. Second, strategic cooperation is easier said than done. The “frugal” countries of Northern Europe are still cautious about increasing public spending or issuing common government bonds. Plans for a unification of capital markets have long been thwarted by interest groups within some countries.
It is very important that the members of the European Commission are competent. Reducing regulations and clearly defining areas of strategic cooperation are not simple issues. Draghi’s recommendation that European merger rules take into account industrial strategy objectives has already sparked fears that it could undermine competition in member countries’ internal markets.
However, the EU has shown that it can adapt to the challenges of the current era. It gave up Russian gas and secured €750 billion in funds for its post-pandemic recovery program. The dangers were rising energy prices and the economic crisis. At present, the decline in European competitiveness may be less imminent, but it is no less serious. The longer the EU lags behind its main global competitors, the harder it will be to catch up. The valuable document developed by Draghi should guide the actions of European decision-makers and member countries.
As for Romania, where there is no macro-economic vision, the transposition of this report into concrete measures would prove, on the one hand, that Romania is connected to the exchange of ideas at the European level, and on the other on the other hand, that the Romanian authorities are capable of designing their own strategy for the economic and social development of this country.
Note: the Romanian version of this article is available here.
Photo source: PxHere.com.
