Mario Draghi urges the EU to mobilise €800 billion a year to restore competitiveness

Former European Central Bank (ECB) president Mario Draghi presented a report on Monday concerning the future of Europe’s competitiveness, which was commissioned by the European Commission a year ago. His central proposal is to mobilise investments of up to €800 billion per year (equivalent to approximately 4.5% of the EU’s GDP), sourced from both public and private funds. These resources, which could be supported by a new issuance of joint debt, would be a key tool in regaining ground lost to the United States and China in terms of economic growth, innovation, and productivity.

The report, released at a critical time for the European economy, highlights the need to undertake three major transformations: accelerating technological innovation, reducing energy costs without abandoning the transition to decarbonisation, and cutting strategic dependencies, particularly in crucial sectors such as the supply of raw materials and semiconductors. According to Draghi, the future economic prospects of the Old Continent hinge on its ability to implement a “new European industrial strategy” that unites the 27 member states in a coordinated and effective effort.

An existential challenge

Draghi warns that the EU faces what he calls an “existential challenge”: to increase productivity and economic growth or be forced to scale back on some of its most emblematic ambitions. These include the fight against climate change, the protection of the European social model, and the funding of the welfare state. According to the report, this dilemma is more urgent than ever, as the gap between the European and American GDPs has widened from 15% to 30% over the last two decades. Meanwhile, China continues to make rapid gains.

In his analysis, Draghi notes that the factors that once supported Europe’s economic growth, such as the rise of international trade, access to cheap energy from Russia, and relatively stable demographic growth, are fading. This leaves Europe in a vulnerable position, especially when compared to emerging and established powers that have adapted more quickly to new global dynamics.

Innovation, energy, and reducing dependencies

To counter this trend, Draghi proposes three priority areas for action. The first is the urgent need to accelerate innovation, particularly in the tech sector. The former Italian prime minister emphasises that the EU suffers from a significant lag compared to other global powers in this area, which severely impacts its competitiveness. He suggests removing barriers that hinder the rapid translation of innovations to the market, attracting greater flows of investment, and improving the training of human capital in Europe.

The second pillar of the strategy is reducing energy prices, which are currently up to five times higher than in the United States. For Draghi, the transition to a cleaner energy model should not be viewed as a burden but as an opportunity. In fact, he proposes a “joint decarbonisation and competitiveness plan” that not only addresses the reduction of emissions but also promotes the growth of emerging industries, such as clean technologies. In this regard, Draghi suggests that productive sectors and those enabling emission reductions should work together, leveraging technological advances to compete globally.

Lastly, Draghi highlights the need to reduce Europe’s strategic dependencies in key areas like raw materials and semiconductors. In an increasingly unstable geopolitical environment, where major powers like the United States and China are competing more assertively, the EU cannot afford to rely excessively on third parties for essential resource supplies. In response to this situation, Draghi advocates for the creation of an “economic foreign policy” that fosters trade agreements with resource-rich nations, enabling Europe to secure supplies of critical raw materials essential for its economy.

Strengthening Europe’s defence industry

Another key point in Draghi’s report is the call to strengthen Europe’s security and defence industry. The former ECB president stresses that, although the continent has made significant progress in some areas, the fragmentation of the defence sector among member states remains a major hindrance. Draghi proposes greater integration and cooperation between European countries in defence matters, with the aim of optimising investments and harnessing synergies among different actors in the European military industry.

To fund this ambitious transformation, Draghi advises the creation of a common debt fund that would allow the mobilisation of the €800 billion per year needed to finance investments in innovation, energy, and defence. This fund would go beyond the current European financing mechanisms, such as the Next Generation EU recovery fund.