Draghi calls for huge investment to bolster EU's competitiveness

Report from the former president of the ECB says €800bn extra a year needed

Former President of the ECB Mario Draghi said a plan needs to be created to meet the bloc's climate targets and boost defence and security of critical raw materials, calling the task 'an existential challenge'.

Former European Central Bank president Mario Draghi 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.

In his long-awaited report on EU competitiveness, Mr Draghi urged the bloc to develop its advanced technologies, create a plan to meet its climate targets and boost defence and security of critical raw materials, labelling the task “an existential challenge.” 

Mr Draghi said that Europe will need to boost investment by about 5% of the bloc’s GDP — a level not seen in more than 50 years — in order to transform its economy so that it can remain competitive.

He warned that EU economic growth was “persistently slower” than in the US, calling into question the bloc’s ability to digitise and decarbonize the economy quickly enough to be able to rival its competitors to the east and west.

“For the first time since the Cold War we must genuinely fear for our self-preservation,” Mr Draghi told reporters in Brussels on Monday. “And the reason for a unified response has never been so compelling and I am confident that in our unity we will find the strength to reform.” 

Ambitious proposals

Implementing the report’s most ambitious proposals, such as more joint debt, will face significant push back from countries including Germany and the Netherlands, that are strongly opposed to deeper fiscal integration.

The report comes as European leaders are increasingly aware of the loss of competitiveness against the bloc’s main rivals, partly due to Europe’s energy dependency and lack of raw materials. Meanwhile the EU continues to be hampered by the inability of its telecom and defence industries to harness economies of scale and be better prepared for a more nimble security stance.

The EU has also failed to push forward on a roadmap to lower the barriers of its capital markets to mobilise billions across its borders needed to accelerate the development of clean technologies to meet its ambitious green targets. 

Mr Draghi pitched a rewriting of the bloc’s competition policy rulebook so that more money can be pumped into key industrial sectors, and pressed regulators to adopt a more creative approach to vetting mergers. He called for merger watchdogs to take into account the pro-innovative effects of certain deals, which could offset negative risks to competition.

Mr Draghi also gave a boon to the telecom sector, in pressing for greater consolidation across Europe to plug gaps in the bloc’s prized single market.

Gross domestic product in the euro zone’s biggest economy is barely higher than before the pandemic.

The consequences of the slow response to the challenges posed by American financial incentives for the green transition and China’s aggressive industrial plans, with billions of dollars invested in subsidies, are already felt in some of the key industries.

Mr Draghi also noted that energy prices in the region are too high and are holding back investments, while the bloc’s climate goals are placing a heavy short-term burden on the highest-emitting sectors. China and the US do not face such obstacles, while the level of finance they provide to the sector dwarfs that of the EU.

• Bloomberg