The report on EU Competitiveness needs €800 Billion Euros a Year

An EU Industrial Policy to keep up with the US and China!

Mario Draghi has called for a “new industrial strategy for Europe,” emphasizing the need for the EU to increase annual investments by €800 billion to remain competitive against the US and China. His report proposes significant reforms in economic policy, including relaxing competition rules, centralizing market supervision, and enhancing joint procurement in the defense sector. Draghi warns that without urgent action and investment, Europe risks falling into economic stagnation and declining living standards.

The plan calls for a bold response to the eurozone’s economic challenges with the motto “whatever it takes.” This means the EU must invest €800 billion annually to boost growth, akin to a scaled-up Marshall Plan. The EU needs to overcome excessive regulations and trade frictions stifle productivity; reforms are necessary for capital market integration. In addition, political instability in major economies like France and Germany, along with cautious fiscal policies in northern European countries, may hinder progress.

There are several other key challenges that need to be overcome. First, diverse economic interests within the EU could lead to conflicts over resource allocation and policy implementation. Second, geopolitical tensions and policies of other global powers such as the US and China could impact the EU’s ability to execute its industrial strategy in an effictive way. Finally, political sentiment in the EU is important since there is a growing skepticism among citizens regarding the benefits of EU integration. Ensuring that the proposed strategies translate into tangible benefits for all European citizens is essential to maintain public support.

Key Points

• Investment Requirement: Draghi suggests an additional €750-€800 billion in annual investments to boost productivity.
• Policy Reforms: Recommendations include relaxing competition rules and centralizing supervision to facilitate market consolidation.
• Joint Funding: Advocates for common assets and joint EU funding to support public goods and infrastructure projects.
• Economic Challenges: Warns of existential threats to EU living standards without significant reforms and investment.
• Political Resistance: Acknowledges potential pushback from frugal member states regarding joint EU borrowing.

Implications for the European Union

1. Economic Resilience: Draghi’s call for a new industrial strategy highlights the pressing need for the EU to strengthen its economic resilience. By increasing investment and adopting a more unified approach, member states could better navigate global economic turbulence and enhance their competitiveness.
2. Sustainability and Innovation: The proposed strategy emphasizes the importance of sustainability and innovation. Investing in green technologies and digital transformation is crucial for future growth, making Europe a leader in sustainable development.
3. Defense and Security: With rising global tensions, Draghi’s suggestion for centralized defense procurement underscores the necessity for the EU to bolster its security framework. By pooling resources and coordinating defense efforts, Europe can enhance its strategic autonomy.
4. Political Cohesion: The successful implementation of these reforms will require overcoming political divides within the EU. Draghi’s proposals may face resistance from countries wary of increased fiscal integration or collective borrowing, necessitating a robust dialogue on shared priorities.
5. Global Competition: The urgency of Draghi’s message reflects the competitive landscape shaped by the US and China. The EU must adopt a proactive stance to ensure it does not lag behind in technological advancements and industrial capabilities.
6. Social Impact: Investment in strategic sectors can lead to job creation and improved living standards across Europe. However, policymakers must also address potential disparities between member states to ensure equitable growth.
7. Future Outlook: Draghi’s vision for a more integrated and strategically aligned Europe is ambitious but necessary. As global dynamics shift, the EU must adapt its policies to safeguard its interests while fostering unity among its diverse member states.

Conclusion

Mario Draghi’s call for a new industrial strategy serves as a wake-up call for European leaders. With clear recommendations on investment, policy reform, and defense coordination, the EU has an opportunity to redefine its economic landscape. However, this will require courage, collaboration, and a willingness to embrace change in pursuit of a more prosperous and resilient future.

Our view is that something needs to be done but the plan is too ambitious in some areas especially for a call towards a common foreign policy which will be difficult to achieve.

One area where the EU has a competitive advantage is in regulations. Draghi calls for these to be relaxed to allow larger EU firms and mergers to compete with giants from the US and China. Our guess is that the EU will probably loosen merger rules and allow more tie-ups with European to European firms and also with American firms to increase competiveness globally. Scale and innovation capabilities are critical in certain areas.