Mario Draghi’s strategy to boost European competitiveness is both bold and forward-thinking. However, its success is contingent upon navigating substantial regulatory, financial, and political obstacles. The plan’s ambitious nature requires exceptional levels of collaboration and dedication from all parties, suggesting it could become a reality or remain a mere illusion.
Silvia Caschera
13 November 2024
In September 2024, Mario Draghi, former President of the European Central Bank, unveiled a comprehensive report titled “The Future of European Competitiveness.” This pivotal document, commissioned by the European Commission, outlines a strategic vision to bolster the competitiveness of European industry in an increasingly complex global landscape. The Key challenges and recommendations envisaged by the report revolve around 4 crucial point, namely the innovation gap within the EU, the need for balancing decarbonization and competitiveness, the call for increased financial investments and the promotion of regulatory simplification.
The first point in Draghi’s report is the need to close the innovation gap between the EU and global leaders like the US and China. While the emphasis on innovation is crucial, the challenge lies in the EU’s ability to translate research and development into market-ready products. Historically, Europe has struggled with this transition, often due to fragmented markets and regulatory hurdles. Overcoming these barriers will require not only increased funding but also a more integrated approach to innovation policy across member states.
In October 2024, China imposed tariffs on European brandy, including French cognac, in response to EU tariffs on Chinese electric vehicles. This move threatens European competitiveness, particularly for the French cognac industry, which heavily relies on the Chinese market. The new tariffs could reduce demand, leading to economic repercussions such as job losses and reduced income for producers. The Draghi report emphasizes the importance of open markets and fair-trade practices, but the ongoing tariff conflict could lead to a more protectionist trade environment, limiting market access for European products. To mitigate these risks, the EU needs to diversify its export destinations and ensure sufficient funding for innovation and industrial growth, balancing trade policy to support both economic growth and innovation.
Secondly, the report emphasizes the necessity of aligning decarbonization with industrial competitiveness, despite the complexity of this balance. The EU’s stringent environmental regulations can disadvantage European industries compared to global competitors with less rigorous standards. To address this, innovative policy solutions are needed to incentivize green technologies while protecting existing industries from economic strain. Decarbonization can lead to lower energy costs by reducing dependence on volatile fossil fuel prices, enhancing energy security, and stabilizing costs for industries. This shift drives innovation, particularly in clean tech, energy storage, and electric mobility, positioning Europe as a global leader in green technologies.
The report calls for a unified decarbonization agenda across member states, supported by coherent policies, incentives for green investments, and stringent emissions regulations. Transitioning to a low-carbon economy requires significant investments in infrastructure, technology, and workforce training, which are essential for sustainable growth and avoiding climate change costs. Draghi stresses that decarbonization should not compromise industrial competitiveness, advocating for measures like carbon border adjustments and international climate policy cooperation. Key technologies such as hydrogen, carbon capture and storage (CCS), and advanced nuclear power are crucial for achieving deep decarbonization.
Moreover, Draghi’s report recommends substantial financial investments, akin to a modern-day Marshall Plan, proposing EUR 750-800 billion annually, about 4.5% of the EU’s GDP. While this could drive significant growth, securing such funding amidst competing budgetary priorities and economic uncertainties is challenging. The success of this recommendation hinges on effectively mobilizing both public and private sector resources. Historical precedents like the Marshall Plan show that public debt can catalyze economic recovery and growth. Investing in innovation and industrial competitiveness through public debt could stimulate economic growth, increase productivity, and create high-quality jobs, especially in a low-interest-rate environment.
However, high levels of public debt in some EU countries necessitate careful consideration of debt sustainability. Coordinated public debt financing requires significant political will and cooperation among member states. The report suggests issuing common EU debt instruments to finance joint projects, distributing the financial burden more evenly and creating a deeper market for EU bonds. Leveraging private sector investment through public-private partnerships and innovative financial instruments is also crucial to complement public investment and mitigate fiscal impacts.
Finally, simplifying regulations and enhancing policy coordination are critical to fostering a more competitive industrial environment. However, the EU’s complex regulatory framework, which often varies significantly between member states, presents a formidable obstacle. Streamlining these regulations will require extensive cooperation and political will, which can be difficult to achieve in a union of 27 diverse countries.
Draghi’s report, while ambitious, raises important questions about its feasibility and the practical steps required to achieve its goals, and for this reason sparked significant discussion among policymakers, economists, and industry leaders. The report’s sector-specific approach is a strength, as it allows for tailored strategies that address the unique needs of different industries. However, the effectiveness of these strategies will depend on their implementation and the ability to adapt to rapidly changing global market conditions. Ensuring that these strategies are flexible and responsive to new challenges will be crucial for their success.
While the Draghi report provides a comprehensive and ambitious roadmap for enhancing European competitiveness, its realism hinges on several critical factors. Effective implementation will require overcoming significant regulatory, financial, and political challenges. The report sets a high bar, and achieving its goals will demand unprecedented levels of cooperation and commitment from all stakeholders involved.
