Strengthening cooperation and fostering integration, lowering barriers and reducing bureaucracy, drawing inspiration from the excellence of others while preserving the spirit that gives Europe its identity: the social model embodied by the Welfare State. Under these premises, in his long-awaited report on the future of competitiveness in the Old Continent, Mario Draghi draws up a roadmap for the recovery of activity in the Twenty-Seven, now caught between two giants – the USA and China – with stagnant productivity, a suffocated industry and lagging behind in the race to lead the great transformations of the century, such as the technological revolution and climate change.
The document recognises that boosting competitiveness is a huge challenge and cannot be achieved by forgetting the major achievements of the Community project – ensuring that increased productivity goes hand in hand with social inclusion, unlike what happens in countries such as the USA, continuing to promote territorial convergence, encouraging social dialogue and the participation of civil society. To achieve this, it proposes a series of recipes that are listed below and can be summarised as greater public support for key sectors, a reduction in bureaucratic burdens and effective coordination between Member States.
Investing in the single market
Accelerating the integration of the European single market is key to boosting European competitiveness, as the former Italian prime minister points out throughout the report. Although he does not dedicate a specific chapter to this issue, it reappears constantly as if it were a leitmotiv which runs through the skeleton of the entire proposal. The benefits of the union are numerous, the document details: it would make supply chains more resilient, it would allow for the creation of a broader and more competitive common energy market – since European companies now have to bear higher prices than their competitors – it would mobilise a greater volume of private financial resources and it would allow both new and small innovative companies and larger ones to benefit from synergies and economies of scale.
Integrated industrial policy
European industry has gone from being a star pupil to becoming a tired runner struggling to reach the finish line. To regain its position on a global level, according to Draghi, a new industrial policy is needed that interacts with competition and trade policies in a joint strategy. In this sense, the focus should not be on companies, but on sectors; public support for private initiatives should be increased, with consensus and without generating duplications – the reason for so many puzzles and clashes between the different souls that make up the block – and the restrictions imposed by the Competition rules should be relaxed.
The priority objective is to close the innovation gap with the US. According to the economist, although Europe has missed the first race of digitalisation, that of the internet, not all is lost; there are sectors, for example robotics and artificial intelligence (AI), where there is room to assume leadership. The problem, he points out, is that companies dedicated to this often encounter obstacles in attracting financing, and for this reason he proposes “vertically” integrating AI into the European industry and facilitating financing mechanisms and reducing bureaucratic barriers, which could be a boost in leading areas such as pharmaceuticals, medical supplies, the automotive industry and transport in general.
Rethinking investment in R&D and education
The discussion on research and development is in line with this. According to the report, European investment has tended to focus on mature technologies and sectors with slowing productivity growth rates. Furthermore, there are not enough academic institutions of excellence in this field, and public spending on R&D in Member States is insufficient and is not focused on cutting-edge sectors, as is the case in the US, where the vast majority of R&D investment is carried out at federal level. Here, only one-tenth is carried out by the EU.
The former ECB president therefore recommends reforming the EU framework programme for R&D&I in terms of approach, governance and financial capacity, narrowing down areas, allocating more resources to disruptive innovation and reducing bureaucracy, as well as increasing its budget. At the same time, he recommends better coordination between States, with the creation of a Research and Innovation Union and the consolidation of academic institutions that are at the forefront and have sufficient funding. “The EU must become as attractive to inventors as other leading regions in innovation,” he says. He also recommends reducing bureaucratic barriers to the management of intellectual property rights as well as their costs, with the adoption of a unitary patent in all States, and rethinking education and training systems, so that they respond better “to the changing needs and skills shortages.”
Relaxing the competition rules
While it is crucial to protect key sectors and leading companies, the report believes that regulation should facilitate, rather than inhibit as is often the case now, the entry of new competitors, and rather than being a barrier it should become a driver of productivity, innovation and investment. In that case, it suggests, for example, that assessments of mergers should also take into account the impact they will have on innovation in the future, a key area in which Europe needs to gain ground to improve its productivity.
For example, it recommends facilitating consolidation in the telecommunications sector “in order to achieve a true single market, without sacrificing consumer welfare or quality of service”. In this regard, it recommends defining telecommunications markets at EU level, rather than at the level of the Member States.
Financing with common debt
The Draghi report, as expected, analyses how to finance the huge deployment of resources needed for the European economy to invest in priority sectors – digitalisation, decarbonisation, defence capacity – and regain its vigour. It suggests that it should be the public sector, with instruments such as a joint issue of debt as occurred with the recovery plan, who should take the helm to fuel the investment needed given the impossibility of the private sector to mobilise such amounts, of between 750,000 and 800,000 million euros per year. Specifically, “moving towards the issuance of assets [de deuda comunes] to finance joint investment projects between Member States and contribute to the integration of capital markets.”
Joint decarbonization plan
The energy transition is perhaps the great challenge of the century, especially in Europe, with a high dependence on foreign countries and where the decarbonisation objectives set are more ambitious. A scenario that poses a dilemma: how to preserve the competitiveness of local industry, which faces higher costs, and at the same time continue to fight against climate change. According to the report, a “joint decarbonisation and competitiveness plan is needed in which all policies are aligned with EU objectives”. This strategy also involves increasing public support to mitigate the negative externalities caused by the transition.
At the same time, it proposes developing the necessary governance for a “genuine Energy Union”, so that decisions of cross-border relevance are taken in a centralised manner, and the development of an industrial action plan for the automotive sector.
Defense policy
The complicated geopolitical context, with a war in the heart of Europe and the powder keg of the Middle East, has created, according to the document, new needs for defence spending and industrial capacity related to this area. The cost of these investments, it says, can be mitigated through cooperation and, specifically, the development of a “foreign economic policy” based on obtaining critical resources. To this end, it proposes creating an EU Critical Raw Materials Platform, dedicated to centralised purchasing.
As for strategic sectors, he suggests maximising joint efforts in semiconductor innovation and their presence in the most advanced chip segments. “In the absence of common European spending, policy actions for the defence sector should focus on aggregating demand and integrating defence industrial assets.”
Reforming European governance
The report calls for reforming and simplifying the EU’s operating mechanisms, through greater coordination and a reduction in regulatory hurdles. In particular, it recommends establishing a new competitiveness coordination framework to foster cooperation in priority areas, chosen by the European Council at the beginning of each political cycle.
This framework would be divided into Competitiveness Action Plans for each strategic priority, with well-defined objectives, governance and financing, with an eye to minimising bureaucracy and involving as much of the EU institutions and agencies as possible. All this should be accompanied by resources.
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