John Whelan: Mario Draghi's agonising EU decline may drag down Ireland
Last week, former ECB president Mario Draghi released a long-awaited report into EU competitiveness. It called on the EU to invest as much as €800bn extra a year and commit to the regular issuance of common bonds to make the bloc more competitive with China and the US. Picture: Brian Lawless
The EU faces a “slow and agonising decline”, according to a hard-hitting report released last week by the former European Central Bank president Mario Draghi that calls for an €800bn-a-year spending boost to end years of stagnation.
“We are already in crisis mode, and to ignore this is to slide into a situation you don’t want to have,” said Mr Draghi.
But this does not sit well with what we are experiencing in Ireland. Measured by employment growth, Ireland’s recovery from the pandemic and recent economic performance was amongst the strongest in the euro area. Between 2019 and 2023, employment in Ireland increased by 15%, the second-highest of the 20 countries in the eurozone.
Irish Government revenue as a whole grew at an exceptional pace in recent years and was 40% higher in 2023 when compared to its pre-covid level in 2019, driven by employment increases and rapid growth in corporation tax.
And whereas this may reflect the EU as a whole, according to OECD rankings, Ireland is the most productive country in the world. There are additional indications of economic health by the IMD World Competitiveness Rankings report for 2024, which lists Ireland fourth place in the rankings.
“The productivity gap between the EU and the US is largely explained by the tech sector,” Mr Draghi writes, as “the EU is weak in the emerging technologies that will drive future growth”.
In contrast to their European counterparts, Irish firms gained significantly from spillover effects from US multinationals in sectors such as pharmaceutical, medical devices, and communications technology who invested heavily in research and development over the past two decades in Ireland.
Tech companies massively invested in hardware and software as their core activities, while the pharma and medical device companies have invested heavily in digital platforms.
The dynamic environment that contributed to the rapid evolution and adoption of digital technologies in the US enabled Ireland to avoid much of the more conservative innovation approach observed in other European countries.
However, Mr Draghi’s report concerning the issue of the General Data Protection Regulation (GDPR), which at his press conference he estimated to have reduced the profits for small tech companies by more than 15%, could sour relations with large corporations, as well as early-stage investors in Ireland, many of whom come from outside the EU.
Mr Draghi, to his credit, called for simplification of EU laws, including better implementation of GDPR, and the adoption of an “EU cloud and AI Development Act”.
Adding to the potential downside for Ireland is the increased data storage costs in Europe due to the GDPR regulations which has led to a 26% reduction in data storage and a 15% decrease in data processing activities among European firms compared to their US counterparts, rendering them less data-intensive, and less able to manage AI, according to a recent report published by the US National Bureau of Economic Research.
This issue will become increasingly crucial as the development and adoption of AI technologies become central to many of the multinationals operating from Ireland.
If Mario Draghi has read the tea leaves right, the long-term economic structure that has supported Ireland’s growth may be coming to an end. And the golden EU support chain may become a choking noose around our necks.
However, if EU member states buy into his unpalatable solutions, and implement the recommendations in a timely fashion through the European Commission, we may avoid the worst outcomes.
