Mario Draghi’s report on the future of European Competitiveness

Translated by Alessandra Fumagalli 

“We have reached a point where, without any concrete actions, we would have to jeopardize our wealth, environment, or our freedom”.

With these words, Mario Draghi highlighted the necessity of action, without any other deferments, if the wish is to invert the tendency of slowed growth that characterized the European Union in the last twenty years.

On September 2024, 9th, Mario Draghi and the President of the European Commission, Ursula von der Leyen, presented the report on European competitiveness, titled “The future of European competitiveness” and also known as “Draghi’s report”.

The document is an idea of Mario Draghi, ex president of the European Central Bank and an important person in the european economy, and explains his personal vision on the future of european competitiveness.

It proposes a renewed industrial strategy for Europe, making investments of a high range and introducing a new common debt, in order to answer the industrial needs and the continent's defense.

Il rapporto propone una rinnovata strategia industriale per l’Europa, invitando a realizzare investimenti di portata eccezionale e a introdurre un nuovo debito comune, per rispondere alle necessità industriali e di difesa del continente.

The common debt

The future of European competitiveness report highlights the fact that the European Union has to mobilize 750-800 billion euros per year in order to compete with the United States and China. In order to reach this goal, it is important to raise investments, from the current 22% of the GDP to the 27%, reversing a decade-long decline of the main European economies. “The EU should continue emitting common debt instruments, following the model of Next Generation EU’s funds, in order to finance shared investments’ projects, which raise competitiveness and security”, declared Draghi. Moreover, the report warns that if the public essential goods, like infrastructures and defense’s ability, are not planned and financed together, they could result in insufficient funds.

Innovation, decarbonization and strategic autonomy

The report, made up of 400 pages, is divided into 4 main parts: Part A, which outlines the competitiveness strategy for Europe, while Pat B contains in-depth analysis and policy recommendations.

The first part of the report outlines three major changes facing Europe today and proposes a new industrial strategy to address these challenges: innovation, decarbonization and strategic autonomy in the advanced technologies and raw materials.

Sustaining the companies in Europe through the promotion of innovation

As far as innovation is concerned, the report underlines the need for Europe to focus on the advanced technological developments, overcoming the rigid industry and the severe normatives which slow commercialization of innovations. These obstacles don’t encourage European start-ups to stay here, but to go away in order to grow.

The European Union urgently must re-point its collective effort in order to reduce the innovation’s difference with the United States and China, especially in the high technology sector. “The problem is not the lack of ideas or ambition in Europe (...), but the fact that innovation is blocked: we are not able to transform innovative ideas into commercial products”, explained Draghi.

In the last fifty years, any European company with a value superior to 100 billion euros was created from scratch, and since 2008, 30% of the European start-ups valued more than 1 billion dollar have to leave the continent due to the difficulty of growth.

With the Artificial Intelligence’s revolution, “Europe can’t be anchored to the old technologies and industries. We have to free our innovative potential”, added Draghi, highlighting the importance of investing in human competences in order to realize these ambitions.

Decarbonization as necessity and opportunity

Decarbonization is considered not only a necessity, but also a strategic opportunity for Europe. The aim is reducing energy cost and using industrial opportunities offered by the transition towards a sustainable economy. However, in order to avoid decarbonization to become a stop to competitiveness, it is essential that it is managed coordinately. Politics must be harmonized in order to guarantee decarbonization’s advantages to reach the final consumers, favoring, in the meantime, the development of the industry of clean technologies.

Dependence on critical raw materials and advanced technologies

Draghi affirmed the importance for the European Union of reducing its economic dependence, in order to reinforce its intern security, highlighting the fact that the EU is exposed to some risks connected to the dependence on less critical raw materials’ suppliers and digital technologies. For example, he underlined that 75-90% of the global productive ability of wafer semiconductors is in Asia.

In order to face this vulnerability, Draghi proposed the adoption of an european project of abroad economic politics, which coordinates commercial agreements and direct investments with rich countries. This project should include the creation of strategic reserves and the building of industrial partnerships to assure the continuity of the fundamental supplement chains. Europe, in this way, could reduce its dependence, reinforce its economic autonomy and its resilience to hypothetical interruptions.

Research and Innovation

Part B of the report plays a fundamental role for innovation, giving detailed analysis and policy recommendation for the EU’s competitiveness.

The paragraph begins highlighting the way research and innovation are fundamental for the growth in the productivity, wealth, and the support of the European welfare system, especially in a context of demographic aging. However, Europe is in a backward position as compared to the United States and China, in terms of innovation. Draghi’s report has some proposals in seven strategic sectors, aiming at creating or empowering, in the short and middle term, the conditions so that Europe can fully use the innovation’s contribute to improve its competitiveness in the international markets:

Il capitolo inizia evidenziando come la ricerca e l'innovazione siano fondamentali per la crescita della produttività, il benessere e il sostegno al sistema di welfare europeo, specialmente in un contesto di invecchiamento demografico. Tuttavia, l'Europa si trova in una posizione arretrata rispetto a Stati Uniti e Cina in termini di innovazione. Il Rapporto Draghi presenta proposte in sette settori strategici, con l'intento di creare o potenziare, nel breve e medio periodo, le condizioni necessarie affinché l'Europa possa sfruttare pienamente il contributo dell'innovazione per migliorare la sua competitività nei mercati internazionali:

1. Supporting disruptive innovation, Start-ups, and Scale-ups;
2. Planning a clearer and more efficient Research and Innovation Programme (R&I);
3. Promoting Universities’ excellence;
4. Investing in technological and research infrastructures, which are leader at a global level;
5. More R&I and better coordination;
6. A normative ecosystem, more favorable and easier for the innovative companies;
7. Shared prosperity as innovation pulse.

In order to deepen these seven points, you can read Part B of Draghi's report.

The European decisional process must be reformed

“A new industrial strategy for Europe will not work without any changes, together with the institutional asset and the Union’s functioning”

To conclude, the report says that, in order to tempestively react to the challenges that the European Union has to face, it should be necessary to simplify bureaucracy and improve the efficiency of the decisional process of the EU. Draghi has indeed highlighted that “the Union is not able to coordinate itself in the crucial sectors and the European decisional rules have not been adopted to EU’s expansion and to the overgrowing complexity and hostilities of the global context we have to face”.

The EU's decisional norms are slower and more complex than US and China’s ones. Decisions, which are bound to multiple votes and to a legislative process that takes 19 months, and they do not adapt to the global developments.

In order to face this situation, the report explains three key goals:

1. Reorienting the EU’s work: creating a new “Programme of Competitiveness’ Management”, in order to consolidate communitarians' politics and improve the coordination, reducing bureaucracy, and focusing on the strategic priorities. This program would include Actions Plans with clear objectives and easy governance.
2. Accelerating EU’s action: using the qualifying majority vote system, and, if necessary, using the reinforced cooperation among member states, in order to overcome institutional blocks. ALternatively, exploring the intergovernative cooperation, with the juridical and democratic limits.
3. Simplifying norms: reducing the normative commitments, eliminating overlapping and incoherences, through a vice president for simplicity and a unique methodology, to evaluate the regolamentation’s cost. THe new norms should be tested for their competitiveness and impacts on the PMI and small businesses, with a major emphasis on the use of artificial intelligence technologies to eliminate administrative costs.

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