THE FUTURE OF EUROPEAN COMPETITIVENESS

Brussels, September 12, 2024

The lengthy report prepared by Mario Draghi on behalf of the European Commission was presented last Monday in a press conference in Brussels. The Report rings the alarm on the urgent need for the European Union to change its system and modus operandi in order to counter the constant slowdown in its growth and the decline in its productivity; a decline that is leading to a progressive impoverishment of the population and puts the European welfare state model and social cohesion at risk. Additionally, this trend comes with an implicit political risk that would see the European Union unable to guarantee its own security and leave it dependent on external powers in strategic technological sectors.

The Report stresses, through an in-depth analysis, the issue plaguing European development and proposes concrete and detailed measures to reverse the current trend and release the EU's enormous untapped potential. With the Report pointing out the strategic sectors to be developed in order to cope with the major transformations taking place currently in world trade, technological innovation, energy, and security.

Underlying the EU's weakness in these crucial areas are its fragmentation and its model of economic governance, which among other things, provides neither industrial policy nor funding instruments to make the huge investments that are needed at this stage, and is instead designed for an international framework that no longer corresponds to reality. These characteristics are severely holding back the EU and this affects, among others things, the cost of energy (electricity prices are 2-3 times higher than in the USA, with natural gas being an astonishing 4-5 times more expensive ), the scarce funding for research and development (256 million made available by the EU compared to 6 billion in the USA), alongside the specific lack of funding for research and development in the military field, which is essential for building an autonomous defence (10.7 billion euros invested in Europe in 2022 compared to 130 in the USA (2023 figures)). This is to say nothing about the root causes of the serious difficulties in the European labour market, the absence of a capital market at the European level, and the lack of investment that is estimated as at least 750-800 billion a year (or 4.4 - 4.7 % of GDP) compared to the current European budget of only around 1 % of GDP.

Given the significance and scale of this huge investment shortfall, the Report makes a number of proposals on how to find the necessary resources; with one of the most significant being to strengthen the EU budget and create a ‘common debt instruments’ modelled on the NGEU to finance long-term investment projects in R&I and defence procurement.

‘Draghi warns that Europe needs an amount of investment that is impossible to sustain without the creation of common debt instruments,' says Domenec Ruiz Devesa, former MEP and President of the Union of European Federalists. ‘At the moment there is only the NGEU, but it is only provisional and as the Report says it should be extended and multiplied in various areas for long-term investments.  If the member states are in favour of new common debt instruments there is an opportunity to create the fiscal capacity for the EU’s continued development under the democratic control of the European Parliament. This would be a step forward that would make treaty reform and the creation of the basis for true European sovereignty inevitable'. 

Transformations in governance is an integral part of the Report; it is very clear that they are its conditio sine qua non, due to the choices to be made, the decisive actions that need to be implemented, alongside the problem of finding the financial resources. However, it is here that the weakness of the European Commission's position on this issue emerges. 

With Draghi seemingly having limited himself to reiterating previously prepared reforms by the European Council, despite his repeated statements given in his personal capacity going further, in which he repeatedly emphasised the need for a political union of a federal nature at the European level. Treaty reform is not taken into consideration, and the Report speaks about the possibility of advancing without reforming the treaties through the passerelle clauses or through enhanced cooperation – which, unfortunately, are two totally ineffective and difficult to use instruments. Perhaps in light of these issues, Draghi proposes a third, alternative option which is the possibility of moving forward in a group of willing States outside the Treaties, similar to what happened with the Fiscal Compact.

The Report thus takes into account the impossibility of advancing all 27 countries together simultaneously, and instead argues for a concentric circle structure. However, the unwillingness to address the issue of a reform of the Treaties (due to significant resistance on the part of the member states and the European Commission itself) implies that the European Commission and member states are unwilling to tackle these issues so as to ensure that a shared European sovereignty does not emerge.

As federalists, we want to stress that the European Council has the solutions to address these systemic issues, having received last December a request from the European Parliament to open a Convention to democratically discuss how to build this new Europe. The European Council has the possibility and the power to decide by simple majority (14 out of 27 states) to accept this request and create the conditions to start that process of change in the EU, which the Draghi Report shows as absolutely necessary and urgent.

We therefore call on the European Parliament to rise to the challenge, demand that the European Commission side with the Parliament and the citizens to overcome the attachment of national governments to their small and inefficient power that is leading Europe to self-destruct. 

As Draghi reminds us, the moment is dramatic and if Europe does not change, it is over. 

We need courageous actions equal to the danger we are running.

RELATED

• Press Conference Ursula von der Leyer and Mario Draghi LINK HERE
• Draghi interventions The Next Flight of the Bumblebee: The Path to Common Fiscal Policy in the Eurozone LINK HERE