EU report calls for €800 billion investment boost

In a much-anticipated report on the 27-nation EU's economic competitiveness, originally due in June, Mario Draghi has called for joint borrowing and much more collaboration among member states to compete with Washington and Beijing. The former prime minister of Italy and ex-president of the European Central Bank (ECB) also urged EU leaders to invest €800 billion ($883 billion) annually to boost growth.

Released in Brussels on Monday (September 9), the report has demanded "radical change" amid growing concern over a massive productivity gap with the United States, where since 2000, incomes have grown twice as much as in the EU.

"This is an existential challenge," Draghi said during a news conference following the report's release, raising the alarm on declining productivity. "We have said many times, growth has been slowing down in Europe, but until two years ago we ignored it, because things were going well."

Europe's weaknesses identified

Draghi's findings, drafted with the aid of the European Commission, come just days before its President Ursula von der Leyen is due to set out the duties of the Commission for her next five-year mandate.

It was no longer possible to ignore the urgency, Draghi said, as "China is competing with us on global markets," and the bloc had lost its "main supplier of cheap energy," in reference to Russian gas supplies.

The report, first of all, recommends closing the innovation gap with the US and China, especially in advanced technologies. "The EU is weak in the emerging technologies that will drive future growth. Only four of the world's top 50 tech companies are European."

During the news conference, Draghi told reporters that since 2008, 30% of European "unicorns" — that is, startup companies valued at over $1 billion — have left the bloc for the US.

In addition, the 400-page report calls for a "coherent plan" to link decarbonization efforts with industrial competitiveness in a way that builds a greener planet and yet ushers in benefits for businesses. The EU has set a target of net-zero carbon emissions by 2050 and member states have vowed to transform their economies to achieve the goal.

Draghi warned that if EU member states failed to coordinate policy, "there is a risk that decarbonization could run contrary to competitiveness and growth.”

The third plank of Draghi's vision is what the report calls an "EU foreign economic policy" aimed at reducing dependencies on China for critical minerals that power modern life. The EU should pursue diplomacy with an eye on economic security and securing key supply chains. "The EU will need to coordinate preferential trade agreements and direct investment with resource-rich nations, build up stockpiles in selected critical areas, and create industrial partnerships to secure the supply chain of key technologies."

EU de-risking strategy in the making?

Experts hope the report will set the tone for the next EU Commission and infuse the urgency needed. "By identifying strengths and weaknesses, it provides a comprehensive and honest picture of the EU's challenges for the decades to come, if it wants to at least prevail in the position it is in today," Filip Medunic, an expert at the Berlin-based think tank German Council on Foreign Relations, told DW. Especially the focus on innovation and global competitiveness was crucial for the next decade, he added. "There's a trade-off between greening the economy and not losing green technologies to global competitors for a lack of funding and scalability."

But other experts are more skeptical, citing the rise of far-right parties in Europe on demands of less decision-making in Brussels. Jacob Funk Kirkegaard, a senior fellow at the Brussels-based think tank Bruegel described this as a "political challenge."

"There are political parties who want fewer common projects, more national determination, who want the EU to have less say," he told DW. "Draghi believes you cannot pretend that you can compete with the US or China if you don't want to make macroeconomic decisions," that generate economies of scale, Kirkegaard said.

Common debt to finance Europe's funding needs

Europe needs to mobilize at least €750 billion to €800 billion a year — equivalent to about 4.5% of the bloc's annual GDP — to keep pace with competitors, according to Draghi's report.

"Delivering this increase would require the EU's investment share to jump from around 22% of GDP today to around 27%, reversing a multi-decade decline across most large EU economies" the report reads, stressing the need for common funding along the mobilization of private investment.

Joint funding for investment in key European public goods, such as breakthrough innovation, defense procurement or cross-border grids, will be necessary, Draghi said.

However, the idea will likely run into opposition from several member states, including Germany, who have so far rejected calls for more debt and subsidizing poorer EU partners. "Member states can say no, and the opposition will be from the so-called frugal countries like the Netherlands, the Nordic countries, even Germany," said Simone Tagliapietra, another senior fellow at Bruegel, and added that Italy and some EU members in the east will most likely "say yes."

And Kirkegaard added that common funding is a "euphemism for Eurobonds," meaning debt backed by all EU members, and could be opposed by wealthier states on the grounds that such debt could be "wasteful, or subject to fraud."

"But the real reason that few admit is a deep-seated inhibition that borrowing must be carried out only if needed, and only for national priorities," he said.

Draghi's ideas, outlined in the report, are sure to face resistance. But the former ECB chief has an influential supporter in EU Commission President von der Leyen who already said that common funding "will be required for certain projects." All she would have to find now was enough "political will" among member states.

Edited by: Uwe Hessler