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Mario Draghi has demanded a “new industrial strategy for Europe”, calling on the EU to raise investments by €800bn a year to fund radical and rapid reform to stop the union falling behind the US and China.
As well as backing a wholesale overhaul of how the EU raises investment funding, the former Italian premier’s highly anticipated report calls for Brussels to drive forward a significant reorientation of economic policy.
Key recommendations include relaxing competition rules to enable market consolidation in sectors such as telecoms; integration of capital markets by centralising market supervision; greater use of joint procurement in the defence sector; and a new trade agenda to increase the EU’s economic independence.
“Never in the past has the scale of our countries appeared so small and inadequate relative to the size of the challenges,” Draghi wrote in the report for European Commission president Ursula von der Leyen. “The reasons for a unified response have never been so compelling — and in our unity we will find the strength to reform.”
Draghi’s report comes as the commission prepares for a new five-year term marked by economic stagnation, a full-scale war on its border and the rise of far-right parties across the bloc.
The former European Central Bank president, credited with saving the euro during the currency crisis over a decade ago, warned that without a surge in new investment — backed by private and public funding — and improved productivity, Europe would fall further behind the US and China.
Draghi said addressing the EU’s lagging competitiveness would require €750bn-€800bn in additional annual investments, equivalent to 4.4-4.7 per cent of EU GDP. This would bring investment-to-gross domestic product to a level not seen since the 1970s.
“The private sector is unlikely to be able to finance the lion’s share of this investment without public sector support,” Draghi wrote, adding that “some joint funding for investment in key European public goods, such as breakthrough innovation, will be necessary”.
He repeated calls for a common safe asset and joint EU funding to back “European public goods” such as common energy infrastructure and joint defence procurement, as well as new levies at the EU level to finance more effective spending through the common budget.
But any push to contribute more taxpayer cash or raise new joint EU debt would spark resistance from more frugal governments in countries such as the Netherlands and Germany, which oppose more EU financing.
Von der Leyen will draw upon the report when writing so-called mission letters to her new team of commissioners that will shape policy priorities for the next five years of the EU’s executive. Her new team is set to be unveiled on Wednesday.
Unless Europe manages to raise its productivity and growth levels, it risks seeing its living standards decline, Draghi said. “We will have to scale back some, if not all, of our ambitions,” he added. “This is an existential challenge.”
On competition policy Draghi advocates a radical change of approach on merger assessments so that the rules do not “become a barrier to Europe’s goals”.
He specifically calls on Brussels to allow consolidation in the telecoms sector by using the EU as the “relevant market” in assessments, rather than national markets. In addition he suggests innovation should be given greater weight in merger reviews.
In the highly fragmented defence sector, Draghi stressed that “in the absence of common European spending” the focus should be on coordinating national procurement and joint defence projects, as well as greater market consolidation “when increased scale would deliver efficiencies”.
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