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Mario Draghi has called for a “new industrial strategy for Europe”, calling for the EU to increase investment by €800 billion a year to fund rapid and radical reforms to prevent the union from falling behind the United States and China.
As well as advocating a radical overhaul of how the EU raises investment capital, including “new common funding and common assets”, the highly anticipated report commissioned by the former Italian prime minister calls on Brussels to push for a significant reorientation economic policy.
Key recommendations include relaxing competition rules to allow market consolidation in areas such as telecommunications; integrating capital markets by centralising market oversight; making greater use of joint procurement in the defence sector; and a new trade agenda to strengthen the EU’s economic independence.
“Never before in the past have our nations been so small and inadequate compared to the scale of the challenges,” Draghi wrote in a report to European Commission President Ursula von der Leyen. “The reasons for a united response have never been so urgent — and in our unity we will find the strength to reform.”
Draghi denied that his report represented a “do or die” demand for the EU. “But it is: ‘Do this, or it will be slow agony,’” he told reporters. “We have reached a point where if we do not act, we will have to compromise our welfare, our environment or our freedom.”
The report comes as the commission prepares for a new five-year term marked by economic stagnation, all-out border fighting and the rise of far-right parties across the bloc.
The former president of the European Central Bank, who is credited with saving the euro during the currency crisis more than a decade ago, has warned that without a wave of new investment – backed by public and private funding – and improved productivity, Europe will fall further behind the United States and China.
Draghi said addressing the EU’s sluggish competitiveness would require €750-800 billion in additional annual investment, equivalent to 4.4-4.7 percent of EU GDP. This would take the investment-to-gross domestic product ratio to levels not seen since the 1970s.
“The private sector is unlikely to finance much of this investment without public sector support,” Draghi wrote, adding that “some joint financing of investment in key European public goods, such as disruptive innovation, will be necessary.”
He repeated calls for a common EU safe haven and common funding to support “European public goods” such as common energy infrastructure and common defence procurement, while acknowledging that there was still a lack of political will, nor new taxes at EU level to finance more efficient spending through general budget.
But any move to contribute more taxpayer money or raise new common debt to the EU would face opposition from more frugal governments in countries such as the Netherlands and Germany, which oppose more EU funding.
“The proposal for a joint EU loan in the current political climate across the EU is a completely unworkable idea,” said an EU diplomat.
Von der Leyen did not give specific confirmation of the EU’s new common debt.
While “some common European projects” such as defence and cross-border energy infrastructure will need to be jointly funded, she said they could be paid for by additional national contributions or EU-level taxes that flow into the bloc’s common budget.
She will rely on the report when writing the so-called mandate letter for her new team of commissioners, which will shape policy priorities for the next five years of the EU executive. Her new team will be announced on Wednesday.
Draghi said that unless Europe can boost productivity and growth, it risks seeing living standards fall. “We will have to scale back some, if not all, of our ambitions,” he added. “This is an existential challenge.”
On competition policy, Draghi advocated a radical change in the approach to merger review so that the rules do not “become an obstacle to European objectives”.
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 consolidating larger markets “where increased scale would bring efficiencies”.
Draghi also argued for reforming energy markets so that cheap renewable electricity prices are no longer dictated by more expensive fossil fuels.
Brussels has proposed a number of reforms to the bloc’s electricity market in the wake of the 2022 energy crisis but changes to the market have been slow.
Additional reporting by Alice Hancock in Luxembourg.
