In Brussels, it’s Mario Draghi’s day. EU at a point of no return in the race toward the twin transition

Brussels – A year since Ursula von der Leyen entrusted him with the task, Mario Draghi, today (Sept. 9), unveiled the report on the future of European competitiveness. A 400-page study in which the former Italian premier pointed the way for European institutions not to drown in the new, more aggressive, and competitive global ecosystem. There is no more time: “We have reached the point where, without action, we will have to either compromise our welfare, our environment or our freedom,” Draghi warns.

In a press conference with the president of the European Commission, the former ECB president was clear. Massive investments that Europe has never made in modern history are needed to digitize and decarbonize the economy and increase defense capacity. “The investment share in Europe will have to increase by about 5 percentage points of GDP,” Draghi indicated. For comparison, during the immense Marshall Plan that put World War II-torn Europe back on its feet, investment amounted to about 1 to 2 percent of GDP per year.

Without a change in gear, something or someone will be left behind. “We will not be able to become, at once, a leader in new technologies, a beacon of climate responsibility and an independent player on the world stage.” We will not be able to finance our social model.” The Italian economist warns that not least because – and this is not news – Europe’s demographic winter is upon us. By 2040, the labor force will shrink by close to 2 million workers per year.

Draghi makes about 170 proposals for a radical change in the EU’s industrial strategy. But “we are not starting from zero,” he reassures. The innovation gap with the United States and China must be closed, especially in advanced technologies. EU companies spend €270 billion less than their US counterparts on research and innovation. Indeed, many European entrepreneurs are saying goodbye to the single market and moving abroad, especially to the other side of the Atlantic, where it is easier to apply for funding. Between 2008 and 2021, “close to 30 percent of the ‘unicorns’ founded in Europe – startups that went on to be valued over USD 1 billion – relocated their headquarters abroad,” the report says.

Then there is the other chimera: a shared European plan that combines decarbonization and competitiveness. An inefficient energy market must be reshaped, with European companies paying at least twice as much for electricity as their American counterparts. “Market rules prevent industries and households from capturing the full benefits of clean energy in their bills,” Draghi admits. Although more than one-fifth of the world’s clean and sustainable technologies are developed on the old continent, the opportunity remains untapped. “Decarbonization must happen for the sake of our planet. But for it also to become a source of growth for Europe, we will need a joint plan spanning industries that produce energy and those that enable decarbonization,” the Italian economist said.

The third area for action is increasing security and reducing dependencies on the world’s giants. With the lesson from Russia, the EU must develop more strategic autonomy. We need to diversify, and China is not enough because global demand for transition-critical raw materials “is exploding,” and Europe is not necessarily a favored customer. “The EU will need to coordinate preferential trade agreements and direct investment with resource-rich nations, build up stockpiles in selected critical areas, and create industrial partnerships to secure the supply chain of key technologies.”

The war in Ukraine and the Russian threat have also turned the spotlight on the EU’s defense capability with the bogeyman of a Trump return to the White House, which could re-discuss Washington’s historic commitment to protecting European allies. The EU is second in the world in military spending, but member states move at their discretion. Draghi makes a clear diagnosis. The EU defense industry is too fragmented, hindering the ability to produce at scale, and a lack of standardization and interoperability of equipment weakens Europe’s ability to act as a cohesive power. For example, the EU produces twelve types of tanks, while the United States produces only one, the report points out.

This last point highlights a principle that permeates Draghi’s speech: “It is evident that Europe is falling short of what we could achieve if we acted as a community.” The United States and China are in the lead because they manage to implement industrial strategies that combine “fiscal policies to encourage domestic production, to trade policies to penalize anti-competitive behavior, to foreign economic policies to secure supply chains.” The EU is limping because of “its slow and disaggregated policymaking process.” In Brussels, it takes an average of 19 months to pass a new law.

But slowness is also a political calculation. Draghi knows this and warns: “We should abandon the illusion that only procrastination can preserve consensus. In fact, procrastination has only produced slower growth, and it has certainly achieved no more consensus.” The former premier has not spent the past year pointing out smoky political ambitions but priorities to be put on the ground as soon as possible. Otherwise, we can forget the Europe of prosperity and freedom.