Mario Draghi is an outstanding Italian economist. He obtained his PhD in economics from the Massachusetts Institute of Technology (MIT) in 1976 under the supervision of Franco Modigliani and Robert Solow, two economists who later won the Nobel Prize in Economics. Draghi subsequently pursued a successful professional career in which he has distinguished himself as a university professor in Italy (1975-1985), international civil servant at the World Bank (1985-1990), civil servant at the Italian Treasury (1991-2001), private executive at Goldman Sachs (2002-2005), Governor of the Bank of Italy (2005-2011), President of the European Central Bank (2012-2019) and President of the Council of Ministers of Italy (2021-2022).
A few days ago Mario Draghi presented a report entitled “The future of European competitiveness”, which has shaken Europeans for its clarity, its diagnosis, its conclusions and its proposals. This would not be the first time that Draghi’s approach could be crucial for the region. The first time was in 2012, in the midst of a crisis of confidence that threatened European financial stability and had undermined confidence in the common currency. On that occasion, in the midst of great financial turbulence, Mario Draghi gave a memorable speech in which he stated that the European Central Bank was willing to do whatever it takes to preserve the Euro and added: “Believe me, it will be enough.” This very convincing and convincing statement by the President of the ECB immediately restored calm to the markets and, in the opinion of many, was key to guaranteeing the continuity of the Euro at an extremely critical moment.
The “Draghi Report,” as it is now known, begins with a diagnosis of Europe that immediately set off alarm bells: Europe is the region most exposed to the technological and geopolitical changes taking place around the world. This is because Europe is much more open to foreign trade than other regions, is more dependent on imports of raw materials and digital technology, has the highest energy prices, has relatively few leading companies in new technologies, and has problems with coordination in defense matters. Draghi concludes that if current problems are not addressed, Europe will become less prosperous, more unequal, less secure, less democratic and, therefore, less free.
The report identifies three key areas for the region: first, it must try to close the gap in technological innovation with respect to the United States and China; second, it is necessary to establish a plan for decarbonization and to recover the region’s competitiveness; third, it is necessary to increase security in the region and reduce its dependence, specifically on raw materials and new technologies.
Mario Draghi proposes an ambitious set of reforms that could help reestablish the leadership of European companies, universities and institutions in technological innovation: he proposes harmonising concepts and regulations that allow and encourage innovation; he proposes further integrating capital markets, which would allow more resources to be directed towards financing new technology companies (start-ups); he also proposes allocating many more public resources to finance innovation, which would imply that governments should assume more risks associated with technological innovation. This, of course, represents a major change in the conception of the role that the State should assume in this matter.
On energy, Draghi is very clear: the first thing is to try to reduce energy prices in the region. To do this, however, he proposes acting in different dimensions with a very pragmatic policy that allows them to benefit from the investments that are being made in other parts of the world (for example, in solar panels in China), without this implying giving up the regional security that comes from being able to produce their own batteries and without forgetting to continue supporting key sectors using productive development policies such as those being proposed in other regions. On this issue, Draghi raises an interesting geopolitical dilemma, since he recognizes that the quickest way to achieve climate change goals for the region would be to rely on production in China, but, at the same time, he recognizes that the support that the Chinese State provides to these industries and sectors puts the development of these and other sectors in the region at risk. For this reason, Draghi prefers a mixed scheme that, in essence, allows and guarantees the industrial development of Europe.
Finally, on the security front, Draghi argues that Europe needs to insert itself into the value chains of semiconductor production. This means moving away from traditional and cheaper suppliers of certain raw materials, which again has important geopolitical implications. Draghi suggests establishing a “foreign economic policy” in which Europe reaches agreements with countries rich in natural resources, which allows it to accumulate certain inputs and guarantees it access to the most advanced parts of the microchip production chain. On the defence front, Draghi makes an important plea for reducing fragmentation in security policies in the region and for seeking greater regional coordination.
The final issue, and certainly one of the most controversial, is how to proceed to finance all this. And here comes one of the main surprises: Draghi proposes an important role for public financing, even if this implies that European countries go even further into debt. Draghi considers this to be indispensable, along with making important reforms in the European capital markets to channel more private resources in the direction proposed. This is undoubtedly an ambitious analysis and proposal. Interesting times of realignment in terms of geopolitics and public policies are coming. Latin America should not and cannot remain on the sidelines of what is happening in the world. On the contrary, it must be alert in order to be able to insert itself in the best way possible in the new world order that is just beginning to take shape.
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