Draghi's EU Competitiveness Plan Faces Uphill Battle

Mario Draghi, former European Central Bank chief, has unveiled a comprehensive report on the European Union's competitiveness, highlighting significant challenges and proposing ambitious solutions. The 69-page document paints a sobering picture of the EU's economic position relative to global rivals.

The report reveals that the EU is growing 30% slower than the United States, while China's economic influence continues to expand. Chinese firms now directly compete with euro zone companies in nearly 40% of sectors, up from 25% in 2002. Additionally, geopolitical tensions are impacting trade growth, which accounts for almost 45% of Europe's GDP.

To address these challenges, Draghi estimates that the EU needs to invest an additional 750-800 billion euros annually, equivalent to 4.7% of GDP. This investment is crucial for keeping pace with global competitors, especially considering the EU's aging population and the pressing need for green and digital transitions.

The report proposes several strategies to enhance EU competitiveness:

• Developing an EU-wide industrial strategy
• Mobilizing private and public capital
• Streamlining Brussels bureaucracy
• Encouraging mergers among mobile phone operators
• Implementing common procurement standards for defense

While some proposals, such as bureaucratic reforms, seem achievable, others face significant obstacles. The EU's fragmented capital markets and over-reliance on bank financing hinder private investment. Public sector involvement is complicated by budget constraints, with eleven member states, including France and Italy, exceeding the EU's 3% GDP deficit limit in 2023.

Political challenges also loom large. Germany and the Netherlands, despite having stronger fiscal positions, are reluctant to increase "Brussels spending." Moreover, political upheavals in key capitals like Berlin and Paris further complicate the implementation of Draghi's recommendations.

"The EU will have to invest up to 800 billion euros extra a year just to keep up with global rivals."

The scale of the proposed investment is staggering, surpassing even the post-World War II Marshall Plan in relative terms. While Draghi advocates for a program similar to the 800 billion euro pandemic recovery fund, such an initiative would require overcoming member states' long-standing opposition to common debt instruments.

As the EU grapples with these challenges, it must also consider its broader goals, such as achieving climate neutrality by 2050 and maintaining its position in the digital economy. The success of Draghi's plan hinges on convincing national capitals that Europe's investment crisis demands action as urgent as the response to the COVID-19 pandemic.

In the face of these hurdles, the EU's ability to implement Draghi's recommendations and close the competitiveness gap with the US and China remains uncertain. The coming months will be crucial in determining whether the bloc can muster the political will and economic resources necessary to revitalize its competitive position on the global stage.