BRUSSELS, Sept 9 (Askume) – The European Union needs a more coordinated industrial policy, faster progress if it is to keep pace economically with the United States and China, Mario Draghi said on Monday in a long-awaited report on investments.
A year ago, the European Commission asked the former European Central Bank president and the Italian prime minister to write a report on how the EU should maintain its green and digital economy competitiveness as global frictions intensify.
“The current situation is really worrying,” Draghi told a news conference in Brussels.
“Growth in Europe has been slow for a long time, but we ignored it… We can’t ignore it anymore. It has changed.”
Trade protectionism is on the rise, cheap energy supplies from Russia are disappearing, the EU needs to pay more for defence, and the population is declining.
Draghi said in a nearly 400-page report that the EU needs 75-800 billion euros ($829-884 billion) of investment each year, up to 5% of GDP – far more than even the 1-2% of EU GDP that was part of the Marshall Plan to rebuild Europe after World War II. The EU must act on several fronts.
Draghi warned: “‘Just do it’ or it will be a slow pain.”
Draghi’s report said EU countries had responded to the new reality, but added that a lack of coordination had limited its effectiveness.
Varying levels of subsidies in different countries disrupt the single market, fragmentation limits the scale needed to compete globally, and the EU’s decision-making process is complex and slow.
The report recommends that so-called qualified majority voting – rather than requiring unanimous consent – should be extended to more areas and, as a last resort, like-minded countries should be allowed to go it alone on some projects.
Draghi said that although existing national or EU funding sources would cover some of the large investments needed, new common funding sources would also be needed – something countries, led by Germany, have been reluctant to agree to in the past.
German Finance Minister Christian Lindner said joint borrowing would not solve the EU’s problems and that Germany, the biggest economy in the 27-nation bloc, would not agree to it.
Analysts say the EU could back down from Draghi’s proposal.
“Political difficulties in Germany and France, as well as long-standing differences among other EU members, could hinder the great leap forward in integration that Draghi has set out to make,” analysts at Eurasia Europe said.
“Moreover, recent political developments in France, despite the appointment of (Michel) Barnier as prime minister last week, have cast further doubts over the EU’s ability to achieve meaningful fiscal ambition…”
Better Regulation
Draghi also said EU antitrust regulators should not approve mergers based only on competition within the EU, but should also consider whether acquisitions can spur innovation in industries such as technology, where scale is crucial for competition. Security and resilience should also be more important, he said.
The report also makes recommendations for 10 economic sectors, including energy, artificial intelligence, pharmaceuticals and space.
Andrew Cunningham, chief economist at Capital Economics, said there was plenty of sensible advice but much of it was unlikely to be adopted, adding that previous reports by Enrico Letta this year and Mario Monti in 2010 had “mostly failed to cover the ground”.
Over the past two decades, the EU’s economic growth has remained slower than that of the United States, while China has been catching up rapidly. This gap is largely due to lower productivity.
Draghi said that if the EU maintains the average labour productivity growth from 2015, it will only be enough to keep GDP unchanged in 2050. However, the EU needs more money for decarbonisation, digitalisation and strengthening defence.
Draghi’s report comes at a time when the problems he raised – a lack of investment, the loss of cheap energy and changing demographics – are becoming more pressing.The economic crisis is casting doubt on Germany ‘s economic model, once the EU’s growth engine. Volkswagen (VOWG_p.DE), Europe’s biggest carmaker and one of the pillars of German industry, said last week it was considering closing its first factory in Germany.
Draghi said the EU was struggling with rising energy prices and could no longer rely on open foreign markets after losing access to cheap Russian gas.
The former central banker said the EU needs to boost innovation and reduce energy prices while continuing to decarbonise and in particular reduce its reliance on China for essential minerals and increase defence investment.
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