The future of European competitiveness -
A competitiveness strategy for Europe"

Article

The Report was requested by the European Commission’s (EC) President Ursula von der Leyen, and it suggests a plan to boost the European Union's (EU) competitiveness, involving an additional annual investment of 800 billion euros, equivalent to around 4.5 per cent of the EU's GDP.

This figure aims to close the productivity and income gap with the United States (currently estimated at 72 per cent of Gross Domestic Product (GDP) per capita, after almost 20 years of divergence - at the end of the 1990s, they were on a par), and secondly with China.

In his Report, Draghi warns that, without action, Europe will be forced to jeopardise its well-being, environment or freedom, describing the situation as an ‘existential challenge’ for the EU’s block. The economist identifies several areas where Europe is losing ground, including technology, innovation and productivity: only 4 of the 50 largest technology companies in the world are European (ASML, The Netherlands; SAP, Germany; Nokia, Finland; Ericson, Sweden), and states that around 30 per cent of European unicorn start-ups end up moving to the United States.

The Report then emphasises the need for a new industrial strategy to reverse this trend of a slow economic growth in the EU, warning that without a significant increase in productivity, Europe will not be able to finance its social model or maintain its ambitions in technology, climate and foreign policy.

The proposed plan is disruptive and controversial as far as financing is concerned, as it suggests:

1. Common debt issuance: it advocates the creation of a new fund that would issue common debt to finance joint investment projects between EU Member States. This proposal is similar to the mechanism that was used for the COVID-19 post-pandemic Recovery Fund.

2. Reform of the EU budget: it suggests a reorientation of EU budget funds, diverting resources from the poorest regions to industrial, digitalisation and innovation policies, which jeopardises convergence between regions.

3. Private investment: it argues that the private sector should play the leading role, pointing out that 80 per cent of investment in Europe comes from companies, banks and private savings.

4. New resources: although not specified in the Report, the President of the European Commission, Ursula von der Leyen, mentioned the possibility of creating new resources for the EU as an alternative to the common debt.

The Report emphasises the need to relaunch the European industry, highlighting clean technologies, reduced carbon emissions, artificial intelligence and research and innovation, namely by reducing energy prices in Europe, which are significantly higher than in other parts of the world; investing in renewable energy infrastructure and distribution networks, and updating energy market rules to allow industries and households to fully benefit from clean energy.

However, despite advocating these changes, Draghi reaffirms the importance of maintaining the European social model: the EU must aspire to reach US levels of productivity and innovation, but without adopting the negative aspects of the American social model.

This position differs from previous approaches that often linked competitiveness to cuts in labour and social rights.

Some of these proposals are expected to be included in the plan that the European Commission is preparing to present, called the ‘Competitiveness Compass’, which aims to cut red tape to an unprecedented degree in order to boost the block's economy over the next five years.