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The former European Central Bank president revealed his long awaited (with about four hundred pages) publication, the so-called Draghi Report. Main report’s message is to invest in “prospective growth” patterns to increase the EU-wide low presently productivity and avoid “slipping behind” the US and China. Present development period is described as the EU’s “existential challenge” coped with the regions’ welfare, environmental quality and independence at stake; however, the Commission’s view is slightly different and more optimistic…
Background
The report underlines that it is fundamental for the European Union to become more productive in the world: present EU-27 political economy is facing a historic moment. It is forced to choose such priorities as being able to join (or even become a leader) in the global community of new technologies, or bear a world-wide climate responsibility and to be a vital player on the world stage. Otherwise, the EU would not be able to finance its famous social market model, as well as scaling back some, if not all, of its ambitious goals and perspectives.
The Commission has underlined two fundamental principles involved in the altering political economy: first, in order to ensure the EU’s long-term competitiveness it is necessary to shift away from fossil fuels towards a clean, competitive and circular economy; second, the EU efforts on competitiveness must be inclusive, i.e. go hand in hand with increased prosperity “for everyone in Europe”. Therefore, all transformations and transitions that the Commission has envisioned and set in motion so far must be fair; besides, the member states have to see that their growth models are built on a progressive social model as an integral part of the EU-wide social market economy.
There seems to be increasing agreement among the leaders on the need to reform the EU-wide €1.2 trillion budget, diverting funds away from Europe’s poorer regions toward industrial, digitalization and innovation policies.
Draghi suggested additional finding for metals’ availability to supply the digital and energy transitions, i.e. the EU needs “coordinated strategy covering the entire value chain, from raw materials to final products”.
The report notes that many European entrepreneurs prefer to seek financing from US venture capitalists and scale up in the US market. During 2008-21, about 30 percent of the “unicorns” founded in Europe (i.e. the startups that valued over $1 bn) relocated their headquarters abroad, mostly to the US.
Commission’s approach
The Commission President underlined three key aspects of the EU-wide competitiveness:
= First, the EU need to “master the clean and digital transition” concept adopted some years ago; now “it is time to see it through” by e.g. supporting industrial sectors through decarbonisation by using scientific innovation and turning the development into a competitive advantage. To achieve this, the states need to act on all “the principal levers” at their disposal: bringing down energy prices, mobilizing public and private investment, improving the business environment and cutting unnecessary red tape.
= Second, the member states need more skills because “technologies are only as good as the people designing, producing and operating them effectively. Thus, the EU has to step up investment in skills as the states need to bring more people into the job market, equipped with the skills that are needed for the clean and digital transition.
= Third, in order to be competitive, the EU-27 needs to be resilient; the region has gone through multiple shocks over the past years. The member states have been working on building more robust industrial value chains, especially when it comes to security of supply. Key concepts here are access to critical raw materials and to essential components, strong energy and digital grids, just to name a few.
Citations and reference to: https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_24_4601
Altering growth patterns
According to Draghi’s report, the EU is entering an exceptional period in its recent history in which growth will not be supported by rising populations. By 2040, the workforce is projected to shrink by about 2 million workers each year; . We will have to lean more on productivity to drive growth. If the EU were to maintain its average productivity growth rate since 2015, it would only be enough to keep GDP constant until 2050 – at a time when the EU is facing a series of new investment needs that will have to be financed through higher growth.
To digitalize and decarbonise the economy and increase the Union’s defence capacity, the investment share in Europe will have to rise by around 5 percentage points of GDP to levels last seen in the 1960s and 70s; for comparison, the additional investments provided by the Marshall Plan to Western Europe (during 1948-51) amounted to around 1-2% of GDP annually. The EU needs an unprecedented level of investment, more than double that linked to the Marshall Plan which channeled $13 billion, which is equivalent to about $150 billion presently.
Source: Competitiveness strategy for Europe (Report’s Part I, -66 pp out of the total 400 pages) in: https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en?filename=The%20future%20of%20European%20competitiveness%20_%20A%20competitiveness%20strategy%20for%20Europe.pdf
The Politico’s comment
In his report, Draghi is pushing for the EU to issue a “new common debt” of about €800 bn to fund its economic-industrial and defense needs; the goals that are often opposed by several member states. He underlines that the EU leaders’ should abandon the illusion that only procrastination (to keep delaying something that must be done) can preserve consensus among the governments; previously, procrastination has only produced slower growth without achieving consensus. Hence, without resolute actions, the EU “will compromise welfare, environment and/or freedom.”
At the core of Europe’s economic woes, the report argues, is the cost of energy for industry, which is currently forced to pay 158 percent more for electricity than in the US, and 345 percent more for natural gas. However, he noted, that the EU’s goal to proceed with the net-zero greenhouse gas emissions in growth by the middle of the century offer the EU “the chance to build and export clean technologies around the world.
Draghi sees artificial intelligence as an opportunity for Europe “to redress its failings in innovation and productivity and to restore its manufacturing potential”; he calls for AI to be integrated “into the member states’ industries so that they can stay at the front”.
Citations and reference to: https://www.politico.eu/article/mario-draghi-report-says-eu-must-spend-twice-as-much-after-wwii/?utm_source=email/ 9.09.2024.