Brussels warned in Mario Draghi’s report, as EU faces existential crisis
The European Union (EU) is at a critical juncture and must significantly increase its investment and overhaul its industrial policies to avoid an “existential challenge,” according to a stark report commissioned by the European Commission.
The comprehensive and eagerly anticipated review, spearheaded by former European Central Bank chief Mario Draghi, warns that the bloc must ramp up spending by €800bn (£675bn) annually or risk being overshadowed by global powers like the US and China.
The report, published just days before the new European Commission—a body akin to a cabinet—was set to be confirmed, issues a dire warning: without increased productivity, European leaders will be forced into difficult choices between climate goals, economic growth, and foreign policy priorities.
Commission President Ursula von der Leyen, re-elected for a second five-year term in July, tasked Draghi, also a former Italian prime minister, with this critical review last year. The report’s development was shrouded in secrecy, heightening anticipation in Brussels, especially after several months of delayed publication.
The financial recommendations in Draghi’s report are unprecedented, equating to 5% of the EU’s GDP and exceeding the scale of the Marshall Plan that rebuilt Europe post-World War II. Without this substantial investment, the EU risks being unable to sustain its social model and may have to “scale back some, if not all, of [its] ambitions,” the report warns.
Among the report’s key proposals is the expansion of joint borrowing by EU member states to fund the necessary investments—a controversial suggestion that could face resistance from some quarters.
In a post-publication address in Brussels, Draghi underscored the gravity of the situation: “For the first time since the Cold War, we must genuinely fear for our self-preservation, and the reason for a unified response has never been so compelling.”
The report identifies sluggish productivity growth as a significant challenge for the EU, with the region’s stagnant economic progress leading to slower improvements in living standards compared to the US. Draghi emphasized that Europe is falling behind in innovation, particularly when compared to the US, which has birthed several trillion-dollar tech giants. Europe, he argued, has “largely missed out on the digital revolution led by the internet” and is now “stuck” in a rigid industrial framework with few new companies emerging.
Innovative European firms are increasingly opting to relocate abroad, drawn by better funding opportunities and fewer regulatory hurdles. Furthermore, the EU is under increasing pressure from state-backed Chinese companies as it attempts to stake its claim in emerging sectors like electric vehicles and green technology.
The report lays out 170 proposals aimed at reducing regulatory burdens, enhancing decision-making processes, and fostering greater cooperation among national governments—a task that has historically proven challenging for EU member states to agree upon.
Lorenzo Codogno, a visiting professor at the London School of Economics and former head of the Italian treasury, warned in an interview with the BBC that rallying the political will to implement Draghi’s “provocative and bold” recommendations will be “extremely challenging.”
Criticism of the report surfaced quickly, with German Finance Minister Christian Lindner arguing that joint borrowing by EU states would not address the bloc’s structural issues. Lindner asserted that the core problem lies in excessive bureaucracy and a planned economy, not a lack of subsidies.
Credit: BBC
