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A minimum of roughly €800 billion additional investment per year is required for the EU to address the key challenges it faces as outlined in a long-awaited report from former European Central Bank (ECB) President and Italian Prime Minister, Mario Draghi.
Tasked last year by European Commission President, Ursula von der Leyen with producing a report on how to keep up economically with rivals such as the United States and China, Draghi produced a near-400 page report highlighting slowing growth exacerbated by multiple challenges and recommending solutions for the EU to implement.
Brussels is warned in the document, titled The future of European competitiveness, that unless the Union becomes more productive, it will face trade-offs between a number of its goals such as climate commitments and economic and foreign policies.
Some of the difficulties faced by the EU as outlined by Draghi include the passing of the “era of rapid world trade growth,” coinciding with rising geopolitical instability affecting everything from the price of European energy to the stability of Europe’s relationships with key regions.
“The foundations on which we built are now being shaken,” Draghi wrote in the report, adding that despite this, “Europe’s need for growth is rising”.
He notes that a “wide gap” in GDP has opened up between the EU and the US, and that both the United States and China are leaving Europe behind when it comes to innovation and the economic benefits that it yields.
The former central banker points to the fact that only four of the world’s top 50 tech companies are European, as well as the lack of any EU companies with a market valuation of over €100 billion set up “from scratch” in the last fifty years, a period during which six US companies with a valuation of over €1 trillion have been created.
“We are failing to translate innovation into commercialisation, and innovative companies that want to scale up in Europe are hindered at every stage by inconsistent and restrictive regulations,” the report reads.
“As a result, many European entrepreneurs prefer to seek financing from US venture capitalists and scale up in the US market. Between 2008 and 2021, close to 30% of the ‘unicorns’ founded in Europe – startups that went on to be valued over USD 1 billion – relocated their headquarters abroad, with the vast majority moving to the US.”
To meet these challenges, “the investment share in Europe will have to rise by around 5 percentage points of GDP to levels last seen in the 1960s and 70s,” to levels Draghi notes, that outstrip the spending entailed by the Marshall Plan for rebuilding Europe after the destruction caused by the Second World War.
“If Europe cannot become more productive, we will be forced to choose. We will not be able to become, at once, a leader in new technologies, a beacon of climate responsibility and an independent player on the world stage. We will not be able to finance our social model. We will have to scale back some, if not all, of our ambitions.”
“This is an existential challenge,” he warned, adding that if Europe can no longer provide the “fundamental values” it is based on, “it will have lost its reason for being”.
The report indicates three action areas to “reignite growth”: closing the innovation gap with the United States and China, especially in advanced technologies; developing a joint plan for decarbonisation and competitiveness; and increasing security and reducing dependencies.
A number of obstacles to accomplishing these objectives are identified, foremost among them a lack of focused coordination between member states and European institutions and the wasting of “common resources”.
To overcome these, the report suggests a number of measures such as subjecting European Council votes to “qualified majority voting” in a greater number of areas, rather than requiring unanimity, and common funding for large-scale projects such as defence procurement and cross-border grids.
“This report is coming out at a difficult time for our continent,” Draghi writes.
“We should abandon the illusion that only procrastination can preserve consensus. In fact, procrastination has only produced slower growth, and it has certainly achieved no more consensus. We have reached the point where, without action, we will have to either compromise our welfare, our environment or our freedom.”
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