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, including “new common funding and common assets”, the former Italian premier’s highly anticipated report commissioned by the EU 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 denied that his report represented “do or die” demands for the EU. “But it’s: ‘Do this, or it’s a slow agony’,” he told reporters. “We have reached the point where, without action, we will have to either 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, 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, while acknowledging that political will isn’t there yet, 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.
“Proposing joint EU borrowing in the current political climate across the EU is an absolute non-starter,” said one EU diplomat.
Von der Leyen stopped short of specifically endorsing new joint EU debt.
While “common funding will be needed for certain common European projects” such as defence and cross-border energy infrastructure, she said that they could be paid with additional national contributions or EU-level taxes that flow into the bloc’s joint budget.
She 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”.
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”.
Draghi also argued for an overhaul of the energy market so that the price of cheap renewable power is no longer dictated by the cost of more expensive fossil fuels.
Brussels proposed several reforms to the bloc’s electricity market in the wake of its 2022 energy crisis but changes to the market have been slow to materialise.
Additional reporting by Alice Hancock in Luxembourg.
