“These are the two words capturing this report: urgency and concreteness”. This is how Mario Draghi described his report on the future of European competitiveness. The 400-page document, commissioned last year by the President of the European Commission, Ursula von der Leyen, was submitted to her in Brussels on Monday 9 September. Some 170 recommendations are suggested by the former Italian Prime Minister to boost productivity and growth in the EU.
The actions to be taken are guided by three main priorities: - bridging the innovation gap in the EU; - developing a plan for decarbonisation and competitiveness; - increasing safety and reducing dependency. Overall, radical changes are needed, said Mr Draghi. He therefore provides recommendations “designed to be implemented quickly” in ten sectors, including energy, artificial intelligence, semiconductors and defence.
Taking on the competition
There is no shortage of graphs and tables in the report to show the extent to which the European economy is lagging behind its Chinese and American competitors. If the EU does not act quickly, it could be heading for “slow agony”, said Mr Draghi.
This observation has led him to question some of the main principles applied by the Commission in recent years, in the field of competition for example. “The other team players are not playing according to the rules so you need to do something about that”, Mr Draghi summed up, speaking to the press.
This may involve adapting competition rules, particularly for company mergers. For strategic sectors, the contribution to resilience and innovation potential should be taken into account to a greater extent during assessment. This kind of method could make it possible to authorise mergers that would be able to compete with Chinese or American “continent-scale companies”.
However, Mr Draghi believes that the competition rules should not be relaxed with regard to State aid. He believes that the State aid temporary crisis framework should be brought to an end in order to return to a stricter framework and avoid a subsidy race between the EU27.
Rather than national aid to support the industry, important project of common European interest (IPCEI) format is a more effective instrument for achieving the objectives, explains the author of the report, echoing one of the proposals made by his compatriot Enrico Letta (see EUROPE 13393/3).
Billions in public and private investment needed
The European Commission estimates that at least €750 to €800 billion of annual investment is needed to achieve the report’s objectives. Private investment plays a major role in this equation, and Mr Draghi has put forward proposals to mobilise private funds more effectively, including through the completion of Capital Markets Union (see other news).
However, according to the Italian economist, private funding alone will not meet all the needs. New public funding, at European level, will therefore have to be deployed.
To achieve this, the Multiannual Financial Framework (MFF) needs to be thoroughly overhauled. The MFF “tends to be too fragmented”, according to Mr Draghi, who suggests that the overall budget should be prioritised more to better meet strategic objectives. “The EU has close to 50 spending programmes, which prevents the EU budget from reaching sufficient scale for larger projects at pan-European level”, he says in his report.
He believes that the cohesion funds, which represent a large part of the MFF, should be better used and injected more into the priorities of digitalisation, transport, education and connectivity.
Since the EU budget cannot be extended indefinitely, Mr Draghi suggests continuing to issue common debt in the years to come to finance competitiveness and decarbonisation objectives.
The idea of a European common safe asset is developed in the report. “This will make it possible to fund joint projects that are essential for boosting productivity in Europe. A common asset would also greatly facilitate the finalisation of the CMU”, Mr Draghi argues.
When asked about potential sources of money for new European projects, the President of the European Commission did not react to the idea of common debt. She focused on the possibility of new own resources and an increase in national contributions to the European budget.
Both Ursula von der Leyen and Mr Draghi reiterated that it will ultimately be up to the Member States to make decisions about the money to be found and spent.
A need for coherence between different policies
The former ECB President insisted on the need to be as coherent as possible when formulating policies. For example, industrial, commercial or competition policies must absolutely be aligned on the same objectives and principles.
This inevitably means strengthening the single market to remove as many barriers to doing business as possible. Mr Draghi spoke of the excessive regulatory burden on businesses in the EU. “Since 2008, close to 30% of unicorn companies that started in the EU have left. Majority of them to the US. That has to change. Europe must become a place where innovation flourishes, especially for digital tech”, he emphasised.
Externally, the EU needs to develop strategic partnerships to limit dependency and secure certain supply chains, he warns, noting the case of critical raw materials, where vulnerabilities are high.
The full report by Mario Draghi is available at https://aeur.eu/f/dcv (Original version in French by Léa Marchal)