This hard-hitting analysis exposes the continent’s deep-rooted market challenges and presents a bold blueprint to enhance the European Union’s (EU) global economic competitiveness. The report is set to shape the European Commission’s agenda for the next five years.
Overview
The long-awaited “The Future of EU Competitiveness” report was presented at a joint-press conference on 9th September by ex-president of the European Central Bank, Mario Draghi and European Commission President, Ursula von der Leyen. The timing of this report, coupled with Draghi’s esteemed reputation, underscores just how crucial the Commission considers Draghi’s insights in shaping its priorities for its upcoming mandate. The report reveals that EU economic growth is lagging behind China and the United States, potentially jeopardising the bloc’s geopolitical relevance, social equity goals, and decarbonisation efforts. Indeed, living standards in Europe have increased at a much slower rate compared to countries like the United States. Today, the US economy is 50 per cent larger than the EU’s – whereas only 15 years ago they were considered peers. Declining productivity growth across Member States is identified as a key obstacle to overall economic progress.
Strategic priorities outlined in the report
- Major investment required: The report calls for a significant increase in investment, estimating that overall EU investment needs to rise each year by around 4.4 – 4.7% of the bloc’s GDP (€750–800 billion). For comparison, the Marshall Plan of 1948 -1951 amounted to 1 – 2% of GDP.
- Common debt issuance: Draghi called for an expansion on the model of joint debt at EU level – as seen with the likes of NextGeneration EU funds* – to finance investments in digital transformation, green transition, and defence, suggesting this model could become a more permanent feature of EU economic policy.
- Industrial strategy: The report stresses the need to enhance competitiveness in key industries such as clean tech, digital infrastructure, defence, and energy. It calls for more coordinated planning and financing, alongside cutting red tape. Draghi highlights that without significant private finance, key areas like energy grids, defence, and innovation risk being undersupplied.
- Completing the Single Market: Echoing the themes of Enrico Letta’s ‘Much More than a Market’ report, Draghi advocates for the full realisation of the Capital Markets Union (CMU) and unlocking private capital. Key steps include:
- Strengthening EU-wide financial regulation
- Harmonising insolvency frameworks
- Encouraging retail investor participation
- Innovation boost: The report highlights an “innovation deficit” in the EU that requires reformative measures to translate into commercial success.
- Foreign economic policy: Draghi stresses the importance of establishing a cohesive foreign economic policy to secure supply chains and critical resources.
Infrastructure sectors of focus
The report’s call for massive investments in various sectors including:
- Clean energy: With decarbonisation seen as key to growth, the report advocates increased investment in renewable energy, including wind, solar, hydrogen, and carbon capture (CCUS), aligning with the goals of the Green Deal.
- Digital infrastructure: To enhance digital competitiveness, the EU must prioritise investments in broadband, data centres, and 5G/6G infrastructure, building on the Digital Decade programme.
- Transport and logistics: Efforts to strengthen supply chains and reduce dependencies should result in investments in ports, airports, and logistics hubs, thus building upon the TEN-T process and cohesion policy.
Suggested future funding mechanisms
The report suggests a blend of private investment and public support to meet the significant funding needs, potentially through:
- Public-private partnerships: whilst not specifically mentioned, the scale of investment needed suggests increased opportunities for collaboration between public entities and private investors.
- Regulatory reforms: the proposed transformation of the European Securities Markets Authority (ESMA) into a unified regulatory body, akin to the US Securities and Exchange Commission, could affect how infrastructure investments are regulated and financed.
- Simplified regulations: the report recommends simplifying and streamlining permitting and environmental assessments particularly for renewable energy projects. It also identifies what it calls ‘regulatory burdens’ such as the Corporate Sustainability Reporting Directive (CSDR), Sustainable Finance Disclosure Regulation (SDR), EU Taxonomy, and the Corporate Sustainability Due Diligence Directive (CSDDD), and recommends a reduction of such burdens for firms.
The Report’s reception in political circles
The report has been largely well-received by EU policymakers, with key Members of the European Parliament (MEPs) from major parties expressing support for Draghi’s vision. Notably, EU heads of state have refrained from commenting publicly, which is suggestive of their implicit support for the report. Italian Prime Minister Giorgia Meloni, for example, preferred to engage in close conversation with Draghi ahead of the report’s publication.
Support from European Peoples Party (EPP)
Manfred Weber, leader of the centre-right European People’s Party (EPP), welcomed the report’s focus on competitiveness as “the number one issue”, seeing it as opening “the next chapter” after the Green Deal years.
Cautious approval from the Greens
Bas Eickhout, co-leader of the Green group appreciated the focus on public services, renewables, and climate change. However, it remains to be seen how embracing of reforms Member States and European political parties will be.
Mixed reception from the left
Iratxe García, leader of the Socialists and Democrats, supported the report’s focus on quality jobs and affordable energy. However, far-left MEPs like France’s Manon Aubry were critical, questioning both Draghi’s democratic legitimacy and the substance of his proposals.
Beyond Brussels
German Finance Minister Christian Lindner voiced scepticism, arguing that joint borrowing within the EU would not address structural issues. He emphasised that the main obstacle is bureaucracy and a planned economy rather than a lack of funding.
Concluding thoughts
With the von der Leyen Commission II having been announced in mid-September, the report is expected to be a major reference point for EU policymakers and industry leaders.
The report has served as a wake-up call for European politicians, policymakers, and industry leaders with Draghi going as far as suggesting Europe will die a “slow and agonising death” if the proposals in the report are not to be accepted.
*NextGeneration EU (NGEU) was a fiscal response by the European Union to Member States in the wake of the COVID-19 pandemic. Its aim was to disburse pooled funds to revitalise Member States’ economies. In exchange for implementing policies which would make national economies greener and more digital, Member States would receive financial support from the EU. It is expected that this sort of model will not be renewed with key Member States such as Germany and the Netherlands having been against NGEU.