After months of anticipation, Mario Draghi On September 9, he presented his report “The future of European competitiveness”. For a man of few words, delivering a document of almost 400 pages might seem strange, but reading it explains why: there is a lot of wheat and little chaff. Without a doubt, a lot of work behind it.
The report consists of six sections: an initial description of the current situation, the three main challenges (closing the innovation gap with respect to the United States, making decarbonisation and competitiveness compatible, and improving economic security) and two requirements to achieve this: more investment and a strengthening of European governance.
The report is very well written and contains numerous proposals. The diagnosis itself is not particularly original: numerous articles and reports have been highlighting that the European Union is falling behind. Even the figure of investment needs is not new. Where the Draghi Report is most relevant is in the content and detail of the numerous proposals in different areas, reflected above all in the second part (the bulk of the report) and which are more difficult to summarize, but that is where their value lies: in this type of document we rarely go from the muses to the theater.
Summarizing the Draghi Report by saying that Europe needs to issue 800 billion euros of joint debt annually is simply a form of intellectual laziness.
On the other hand, the intellectual authority of Mario Draghi, respected internationally, gives considerable weight to this Report. Draghi, not given to hyperbole, does not hesitate to point out that we are at “an existential moment for the EU”, in which, if Europe does not succeed in becoming more productive, “it will have to choose” between being a leader in new technologies, a leader in climate responsibility or an independent player on the world stage (but never all at once), and furthermore “it will not be able to finance its social model”. These are not gratuitous messages.
It is a pity, however, that most of the press, when talking about the Draghi Report, focuses on the figures and the less original part of the text, or that politicians such as the German Minister of Finance rush to deny any possibility of joint debt, without first studying and assessing the substance of the many proposals to improve competitiveness in different sectors and horizontal areas. To summarise the Draghi Report by saying that Europe needs to issue €800 billion a year of joint debt is simply a form of intellectual laziness. Draghi, of course, reminds us that The obvious: you cannot innovate and grow without investmentand sets a goal. What it indicates at the same time is how to invest well and how to regulate much better so that the investment is effective.
Regarding the problem of technological differentialThe Report insists that Europe does not lack innovation capacity, but many innovative companies end up leaving because they have more possibilities for expansion abroad. To reduce the gap With the US, various financial measures are proposed to promote disruptive innovation, measures of academic excellence, investment in infrastructure, more joint spending on R&D, a simpler regulatory ecosystem and keys to improving workers’ skills.
Increasing dependence on China may be a way to accelerate decarbonisation, but doing so could undermine key sectors for future competitiveness
Match appropriately decarbonization and competitiveness It is even more difficult, since there are numerous trade-offs. Decarbonisation can either enhance or undermine competitiveness, depending on how it is approached, but it is clear that European companies cannot afford to continue to afford electricity and gas prices so much higher than those in the United States, and that fossil fuels will continue to dictate the price of energy until 2030. This poses a dilemma: increasing dependence on China may be a way to accelerate decarbonisation, but doing so may undermine key sectors for future competitiveness. Defining these “key” sectors is no easy task, but Draghi is trying hard. He also proposes reforming the European energy market so that The benefits of clean energy are passed on to prices, support innovation and ensure fair competition vis-à-vis other blocs. Industrial policy is not easy to implement, but it is inevitable if your competitors are doing it. The point is to do it well, and not each Member State on its own.
The third challenge is to increase the economic security. In a hostile geopolitical context, the EU is particularly exposed, with a high dependence on essential raw materials and technological components. For this reason, it must behave as a single bloc in terms of foreign economic policy, promoting trade agreements and direct investment with resource-rich countries, increasing stocks of certain critical raw materials and technologies and creating industrial partnerships to secure the supply chain of key technologies. It must also take advantage of the fact that dependence is twofold: China provides key elements to the EU, but without the EU it would never be able to place all its production. Finally, it is essential to increase Europe’s defence industrial capacity, which is too fragmented.
To achieve all these objectives, Europe will require a additional annual investment of more than 800 billion euros (almost 5% of European GDP). This requires improving private financing (and many measures are detailed for this, including the integration of European capital markets), but that is not enough: public financing of joint projects will have to be promoted.
How to adapt to the new times
Without a doubt one of the most interesting sections of the Report is the one referring to the simplification of the European regulation (pages 317 to 327) “too costly for SMEs and counterproductive for digital sectors”. Draghi warns that more than half of European SMEs point to “regulatory obstacles and administrative burden” as their greatest challenge. European regulation is not only slow, but also overwhelming and cumulative, and does not use a structured and uniform cost-benefit analysis for all institutions. The Report makes numerous proposals for reform, and also goes into detail on how to prevent the transposition of directives from accumulating bureaucratic burden and on how to adapt European competition policy to the new times.
In short, it is worth taking the time to read a truly interesting and complex report like Draghi’s and not falling into the temptation of confusing what is simply a necessary condition for gaining competitiveness (investing much more) with the sufficient condition: creating a regulatory framework and an agile, functional and pragmatic business environment to take advantage of the enormous potential for growth, innovation and competitiveness of the European Union. The wise Draghi is pointing at the moon (and does not hesitate to propose a radical reform of the inefficiencies of European bureaucracy), but the fools, unfortunately, insist on continuing to look at the finger.
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