Draghi calls for reform so EU can keep up with rivals

Brussels — The EU needs far more co-ordinated industrial policy, more rapid decisions and huge investment if it wants to keep pace economically with rivals the US and China, Mario Draghi said on Monday in a long-awaited report.

The European Commission asked the former European Central Bank chief and Italian prime minister a year ago to write a report on how the EU should keep its greening and more digital economy competitive at a time of increased global friction.

“Europe is the most open economy in the world so when our partners don’t play according to the rules, we are more vulnerable than others,” Draghi told a news conference.

In the opening section of a report set to run to some 400 pages, Draghi said the bloc needed additional investment of €750bn-€800bn a year, up to 5% of GDP — far higher even than the 1%-2% in the Marshall Plan for rebuilding Europe after World War 2.

“Growth has been slowing down for a long time in Europe, but we’ve ignored [it],” Draghi said. “Now we cannot ignore it any longer. Now conditions have changed: World trade is slowing, China is actually slowing very much and is becoming much less open to us .... we’ve lost our main supplier of cheap energy, Russia.”

EU countries had already responded to the new realities, Draghi’s report said, but it added that their effectiveness was limited by a lack of co-ordination.

Differing levels of subsidies between countries was disturbing the single market, fragmentation limited the scale required to compete on a global level, and the EU’s decision-making process was complex and sluggish.

“It will require refocusing the work of the EU on the most pressing issues, ensuring efficient policy co-ordination behind common goals, and using existing governance procedures in a new way that allow member states who want to move faster to do so,” the report said.

It suggested so-called qualified majority voting — where an absolute majority of member states need not be in favour — should be extended to more areas, and as a last resort that like-minded nations be allowed to go it alone on some projects.

While existing national or EU funding sources will cover some of the massive investment sums needed, Draghi said new sources of common funding — which countries led by Germany have in the past been reluctant to agree to — might be required.

“If the political and institutional conditions are met, these projects would also call for common funding,” the report said, citing defence and energy grid investments as examples.

EU growth has been persistently slower than that of the US in the past two decades and China is rapidly catching up. Much of the gap is down to lower productivity.

Draghi’s report comes as doubts emerge over the economic model of Germany — once the EU’s engine — after Volkswagen weighs its first plant closures there.

Draghi said the EU was struggling to cope with higher energy prices after losing access to cheap Russian gas and could no longer rely on open foreign markets.

The former central banker said the bloc needed to boost innovation and bring down energy prices while continuing to decarbonise and both reduce its dependencies on others, notably China for essential minerals, and increase defence investment.

Reuters