Last week, the long anticipated
report of former Italian Prime Minister and former European
Central Bank boss Mario Draghi dropped - including some 170
proposals on how to boost the bloc's competitiveness. What does
it entail and what are the reactions?
Mario Draghi's report takes a stern look at the status quo of
the European Union's economy, calling for more investment and
faster decision-making.
The former Italian prime minister acknowledged the ambition of
his proposals which would represent a bigger boost than the
post-World War II Marshall Plan to rebuild Europe, arguing that
it was justified by an "existential challenge" facing the bloc.
The blueprint for competitiveness, based around some 170
proposals, recommends a yearly investment of 750 to 800 billion
Euro, joint debts and reforms to combat lagging behind
competitors such as the USA and China.
He stated that "the only way to become more productive is for
Europe to radically change" but concerns about feasibility,
funding and the impact on the bloc's competitive future remain.
European Commission President Ursula von der Leyen, who in July
secured a second five-year term at the helm of the bloc's
executive arm, hopes to use the 400-page report to shape the
priorities of her cabinet. She had commissioned the report last
year.
First discussions on the report will follow in October, said
Croatian Prime Minister Andrej Plenković.
What does Draghi want?
Draghi called for more investments in research and innovation,
clean energy technologies, and faster regulatory decision-making
and "a new industrial strategy for Europe".
"We have reached the point where, without action, we will have
to either compromise our welfare, our environment or our
freedom," he said in a press conference in Brussels. "It's going
to be a slow agony."
European Central Bank (ECB) chief Christine Lagarde said the
report was "severe" but "just", adding that the proposals in the
report could help the ECB "achieve better results in our
monetary policy".
"Mario Draghi's report on European competitiveness is logical
and takes a good look at the global situation," Croatian premier
Andrej Plenković said.
Productive tech: Draghi, a former president of the ECB, wants
the bloc to close its innovation gap with the United States,
highlighting the major advantage Washington holds in the
high-tech sector.
In the US economy, "most of the productivity is concentrated in
the high-tech sector", Draghi said, noting that when tech is
removed for comparison, the EU's economic productivity has
performed better.
Draghi wants the EU to reduce regulations and ease compliance
for tech entrepreneurs, especially smaller enterprises, as well
as to boost financing options for companies to expand.
Decarbonisation versus growth: The EU must also use its status
as a "world leader in clean technologies" like wind turbines to
achieve new growth through policies to reduce carbon emissions,
Draghi said.
He warned in his report, however, that if policy is not
coordinated correctly, then "decarbonization could run contrary
to competitiveness and growth".
The former Italian premier also warned of an overreliance on
China and that "China's state-sponsored competition" is also a
threat to the EU's clean technology and automotive industries.
According to Draghi, "emulating the US approach of
systematically shutting out Chinese technology" would set back
the EU's transition away from fossil fuels and impose higher
costs on the economy.
Foreign economic policy: Drawing comparisons with the US and
China, Draghi called on the bloc to develop a "foreign economic
policy" to craft more preferential trade agreements, build
stockpiles of strategic raw materials, and secure supply chains
of critical technologies.
Draghi pointed out that "unlike fossil fuels, the EU has
deposits of some essential raw materials", highlighting the case
of lithium in Portugal, which can be used for electric vehicles,
wind turbines and other goods.
However, at the moment, "the EU continues to rely heavily on
imports of raw materials instead of exploiting domestic
resources", he criticised. Lithium is an essential part of the
lithium-ion batteries used in electric vehicles, demand for
which has increased rapidly in recent years and is expected to
reach more than 30 percent of annual vehicle sales by 2030.
Portugal is known as the largest and, in fact, the only
significant lithium production site in the EU, but such
exploitation is not without controversy. Geologists warn of the
environmental impacts.
More broadly, Draghi called for greater joint procurement in
defence, easing competition rules in the telecoms market to
allow more consolidation and deepening capital markets to boost
investments.
The money question
To achieve new economic growth, the EU needs to invest the
equivalent of 4.4 to 4.7 percent of the EU's gross domestic
product (GDP) in 2023, between 750 to 800 billion Euro annually.
Investments should be partly financed by the European Union
through joint borrowing modelled after its historic
NextGenerationEU instrument designed for recovery from the
Covid-19 pandemic, said Draghi. The EU resorted to joint
borrowing for an 800-billion-Euro fund to support member states'
economies hit hard by the pandemic, but the concept remains
controversial.
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