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It is an ‘existential challenge’: if the European Union does not overcome the competitiveness gap with superpowers such as the United States and China, it is condemned to a ‘slow agony’, until it finds itself in the position of having to sacrifice its ‘well-being, the environment or security’ in order to survive. This is how, in his report on the future of European competitiveness presented on September 10 in Brussels, former ECB Governor Mario Draghi chose to explain the historical phase the EU finds itself in. It consists of 327 pages within which Draghi outlines a new industrial (among others) strategy for the European Union, so as to reverse the decline feared in the face of the other superpowers. A set of 170 proposals ranging from economic policies to defence, to common debt and the reform of the Union’s internal decision-making mechanisms.
THE THREE KNOTS OF THE DRAGHI REPORT
In particular, Draghi’s report poses three central elements, three knots to unravel in order to work on the future of the European Union. It starts with innovation and then investment. This is the first sore point of the plan, given that, according to the analysis, EUR 170-800 billion per year would be needed to keep up with the US and China when it comes to great economic and technological challenges. This would be – as several analysts have reported – a double Marshall Plan worth approximately 4.7% of the continent’s GDP. This is an investment that, according to Draghi, could secure the welfare and freedom of European society. Innovation in Draghi’s recommendations would also be stimulated by strengthening the European Innovation Council. A move that would make it closer to the US agency DARPA for the support of strategic technologies. Start-ups should benefit from a simplified and single legal regime for the entire European Union, while the computer networks useful for the development of AI should be strengthened, up to the overhaul of the telecommunications sector – even in the face of substantial changes to competition rules. The second knot of the report concerns the environment and industry, to be developed together considering the needs of one and the other. So, decarbonisation along with competitiveness, seeking to bring together objectives that are instead perceived to be in clear conflict with each other. Central to this process are initiatives such as the joint purchase of gas stocks, or the revision of the cost of renewables by decoupling it from that of methane, which could help lower energy costs. Accelerating decarbonisation, then, but considering the principle of ‘technological neutrality’, thus also focusing on nuclear power with new-generation reactors alongside renewables. Finally, security, which Draghi’s report reads in a very broad sense. As we approach the end of the third year of the war in Ukraine, an analysis of Europe’s future cannot fail to include a special focus on security and defence issues. For the first time since the Cold War, peace and freedom in Europe can no longer be taken for granted. In particular, the absence of a common defence policy is analysed, as well as a defence industry parcelled out into small companies. Draghi’s suggestion in this case would be to aggregate orders between groups of Member States, so as to integrate production. Another theme concerns investments in this sector, especially in research and development, but security is also mentioned in Draghi’s analysis in relation to independence in the field of critical raw materials.
REVISING EUROPEAN MECHANISMS
It is clear that the European framework and the mechanisms that govern it are in need of a major overhaul in order to meet the challenges and critical issues that await the Member States in the years to come. In particular, the report outlines the need to undertake a reform of the Union’s functioning, including a reduction in bureaucracy as well as the overcoming of vetoes. In fact, according to Draghi, an absolute majority paralyses the Union’s capacity for decision-making and initiative. It would, therefore, be more useful to extend qualified majority voting to more subjects. Or, in parallel, incentivise ‘enhanced cooperation’ between certain countries on certain issues, up to and including the drafting of agreements between states outside the EU treaties.
THE RESOURCES PROBLEM
Before analysing the problems from the point of view of policy and relations between the Member States within this report, one has to look at the real hurdle to overcome: the annual resources amount needed, according to Mario Draghi, for the relaunch of the Union. This is, in fact, about EUR 800 billion every year, for which a large chunk of public investment would be needed. That is why the same report recommends a regular provision of Eurobonds. Of course, there is no shortage of resistance to this idea (we will go into more details later), especially from frugal countries. The same criticism could be detected in the intermediate measure proposed by Draghi’s report: the possibility of delaying the repayment of the accumulated debt of the Member States with the NRRP by using it in other strategic sectors linked to the priorities for the future. How, then, to find the necessary funds to relaunch the European union? The solutions put forward so far seem hardly feasible because of the encountered oppositions we will analyse in a moment. The problem in this case is that the measures designed to secure the future of the Union may instead wreck it.
SOME COUNTRIES ARE DISTANCING THEMSELVES
The clash between different economic visions is clear in this context and in the face of measures and investments such as those proposed by the former ECB Governor. The first obstacle – already clearly expressed by declarations made by the executive – comes from Germany, not interested in raising the common debt to finance investments with the risk of replicating what Berlin has done, with debt containment slowly turning into economic stagnation. To understand what Germany’s position is, one only has to consider what German Finance Minister Lindner said: ‘A common EU debt will not solve any structural problems’. The risk, then, is that Draghi’s report will further divide Europe instead of uniting it. It could certainly be the frugal countries, with Germany in the lead, who put up a united front against such initiatives. Austria, the Netherlands, Denmark, Sweden, Finland and the Baltic republics consider it unthinkable to proceed with debt investments, focusing instead on keeping the European budget as small as possible. Eastern member states would probably side with them, interested in maintaining the status quo in order to continue to receive the funds obtained so far from European policies. A complex issue in the chancelleries is also that of revising the treaties to facilitate qualified majority voting. Abandoning unanimous voting could be strongly opposed by several leaders interested in keeping national prerogative above EU prerogative, especially on sensitive topics and areas. So, who could support Draghi’s report? Certainly, in the front row could be France, which since June is among the seven countries (together with Italy) that have come under deficit control. For new prime minister Michel Barnier, the report presented by Draghi that promises to at least question European rules could be the right path to take in order to squash an excessive deficit procedure. As far as Italy is concerned, no specific criticism of the report has yet arrived. The government has so far spoken through the head of the delegation of Fratelli d’Italia in Brussels, Carlo Fidanza, who has pointed out some mistakes made in the recent past. The Draghi report recalls the challenges the European Union has to deal with, as well as welcoming the desire to put an end to a season dominated by an ultra-environmentalist and, above all, anti-industrial ideology.