Brussels – In his highly anticipated report (which you can consult here), the former ECB head Mario Draghi outlined the road the European Union will have to follow in the coming years to continue growing (or better, resume growth) while remaining internationally competitive. From decarbonization to defense via advanced digital technologies, the paper addresses ten sectoral policies that represent as many priorities that will need to be tackled head-on in the immediate future. However, the “Super Mario” recipe requires substantial financial resources. Therefore, the Commission faces the critical question of “coverage.” Where will all the money needed to jumpstart the European engine come from? Draghi spoke explicitly of “joint financing.” It is an open secret that the former Italian premier has always favored issuing joint debt by the 27 member states. Will his authoritative impulse be enough to convince the most reluctant chancelleries?
According to Draghi, “It is evident that Europe is falling short of what we could achieve if we acted as a community.” “Three barriers” are standing in the way of achieving such results: the lack of “focus” and the “fragmentation” of the single market, the “wasting” of “common resources,” and, finally, the lack of “coordination” that combines public policies on multiple levels (fiscal, economic and trade, for example) by creating synergy in terms of policy planning between member states and Brussels.
The first problem is the absence of “clear priorities” and “joined-up policy actions” that actually give substance to the common goals that are also articulated on paper: for example, “we claim to favor innovation, but we continue to add regulatory burdens onto European companies.” As for the waste of resources, Draghi pointed to the duplication that emerges from the fact that “We have large collective spending power, but we dilute it across multiple different national and EU instruments,” undermining the efficiency of spending.
The solution is just as obvious, according to the professor: “If the political and institutional conditions are in place, the EU should continue – building on the model of NextGenerationEU – to issue common debt instruments, which would be used to finance joint investment projects that will increase the EU’s competitiveness and security.” He could not have been more explicit: joint debt between member states, in short, should no longer be taboo.
Yet it continues to be so, remaining politically indigestible to many chancelleries, starting with those of the so-called “frugal countries,” led by Germany and the Netherlands. The president-elect of the EU executive, Ursula von der Leyen, at a press conference alongside Draghi, declined to respond directly on the point. “If we define common priorities, they should be financed through European money,” she told reporters, without going further than the two alternatives mentioned during the presentation: an increase in national contributions to the EU budget or an increase in own resources (or both). To proceed with joint financing, however, there must be the “political will of the member states:” a tombstone – at least temporarily – on hopes of the future issuance of new collective debt securities, i.e., the infamous Eurobonds.
However, according to Draghi, we are at a turning point in History where we can no longer put off the problem. There seems to be no other way out, especially if we are to come out of it effectively. “Two key conclusions can be drawn for the EU,” Draghi says. “Although Europe needs to move forward with its Capital Markets Union (as suggested by another former Italian premier, Enrico Letta, in his report on the future of the single market, Ed.), the private sector will not be able to bear the lion’s share in financing investment without the public sector support.”
The former premier returned on this point several times. As if to say that private spending will be necessary, of course, but it will be nowhere near enough to boost the Old Continent’s economy. It will need, on the contrary, support from public authorities on the order of a couple of Marshall Plans: something like 750-800 billion (just under 5 percent of EU GDP), according to the estimates of the report’s author, to bring the Union back to being competitive in the global market.
How do you make effective public investments? In essence, what Draghi suggests is triggering a kind of virtuous circle of public spending: “The more willing the EU is to reform itself to generate an increase in productivity, the more fiscal space will increase, and the easier it will be for the public sector to provide this support,” according to the report. “This connection underscores why raising productivity is essential,” Draghi continues, reiterating that this also has “implications for the issuance of common safe assets.”
To maximize productivity, “some joint funding” for investment in “European public goods” will be necessary. Instead of having twenty-seven national investments in limited frameworks and with different rules, which generate duplication of facilities and resources that benefit no one, there must be coordinated efforts at the community level to rationalize expenditure and ensure that it brings the best possible shared benefits. At the same time, other public goods (such as defense procurement and cross-border energy infrastructure, for example) “will be insufficient without joint action.”
According to the Draghi report, there are three categories of responses from Brussels and the 27 member states. In many areas, “the EU can achieve a lot by taking a large number of smaller steps, but doing so in a coordinated way that aligns all policies behind the common goal.” In others, “a small number of larger steps are needed – delegating tasks to the EU level that can only be performed there.” On other issues, “the EU should take a step back, applying the subsidiarity principle more rigorously and reducing the regulatory burden it imposes on EU companies” and allowing member states to run things in a decentralized way.
In short, the former ECB president is clear on what needs to be done and on how to do it. The joint challenges of our time require unified responses, according to Draghi. As the EU demonstrated in its response to the pandemic (which deployed joint financial instruments such as NextGeneration), it is possible to achieve results if the political will exists. Now, it will be all about finding -or creating- that political will when all members of the European club understand that it is in the collective interest to move together in a coordinated way. It is no small task for the second von der Leyen College, which has already assured that much of the guidance received in Mario Draghi’s report will flow into the guidelines for the next five years.
English version by the Translation Service of Withub
