Italian Prime Minister Mario Draghi during a press conference in the multifunctional hall of the Prime Minister's Office on July 12, 2022 in Rome, Italy.
Massimo De Vita | Mondadori Wallet | Getty Images
The European Union needs up to €800 billion ($884 billion) in additional funding annually to meet its key competitiveness and climate goals, according to a report by economist and political scientist Mario Draghi.
The report said the EU's goals of enhancing its geopolitical relevance, social equality and decarbonisation were threatened by weak economic growth and productivity compared to the United States and China.
The wide-ranging study, led by Draghi — who previously served as Italy’s prime minister and European Central Bank president during the eurozone debt crisis — found that EU priorities should include lowering energy prices, increasing competitiveness and boosting defense investment.
The EU must also adapt to a world where “dependencies are turning into vulnerabilities and it can no longer rely on others for its security,” the report said, pointing to the EU’s dependence on China for vital minerals and China’s dependence on the EU to absorb its excess industrial capacity.
The report continues that the EU’s high level of trade openness will leave it vulnerable if trends towards supply chain independence accelerate. About 40% of Europe’s imports come from a small number of suppliers that are difficult to replace, and about half of that volume comes from countries with which the bloc is not “strategically aligned.”
The report notes that “the EU will need to develop a real ‘foreign economic policy’ that coordinates preferential trade and direct investment agreements with resource-rich countries, builds stockpiles in selected critical regions, and creates industrial partnerships to secure the supply chain for key technologies.”
The EU will need to ensure that dependencies are not increased and seek to “harness the potential of local resources through mining, recycling and innovation in alternative materials”.
Other goals include the full implementation of the single market, which includes 440 million consumers and 23 million businesses, by reducing trade friction.
The bloc must also ensure that its competition policy does not become “an obstacle to achieving Europe’s goals,” especially in the technology sector. The European Union must also facilitate “the massive investment needs that Europe has not seen in half a century,” through a combination of private finance and public support. At the same time, the EU suffers from an “innovation deficit” that must be addressed through reforms, the report says.
Regarding the steps needed to mobilize private finance, the report recommended transforming the European Securities and Markets Authority from a coordinator of national regulators into a single regulator for all EU securities markets capable of focusing on comprehensive objectives, similar to the US Securities and Exchange Commission.
According to the study, the EU's gross investment-to-GDP ratio would need to rise by around 5 percentage points of EU GDP per year to levels last seen in the 1960s and 1970s to meet defence, digitalisation and decarbonisation targets.
Overall, the specific goals require an additional annual investment of at least €750 to €800 billion, according to European Commission estimates.
The report was commissioned last year by European Commission President Ursula von der Leyen, who was elected to a second five-year term in July and is due to appoint new commissioners this week.
“The results will spark a crucial debate on the future of the EU/euro area, but there is no reason to hold your breath,” Lorenzo Codogno, founder of Lorenzo Codogno Macro Advisors, said in emailed comments ahead of the report’s publication.
“Nothing will happen until the new Commission is fully operational, and even then, the complex, fragmented and fragile political situation in the various member states makes it difficult to get the political support needed to act. However, some surprises cannot be ruled out, and so the political debate that will follow needs to be watched closely,” he said.
