Draghi proposes radical changes for industry and technology: the EU must be united for the new challenges


By John

«Radical changes that are necessary» to «be up to par with the world of today and tomorrow» which «caught the European Union by surprise» with “other regions that no longer respect the rules” and would like the EU to be “permanently dependent on them”. L'former president of the ECB and former Italian prime minister, Mario Draghi, takes advantage of the high-level conference on the European Pillar of Social Rights, in Le Hulpe outside Brussels, to give some previews of the report on Competitiveness that he is drafting for the European Commission and which he will present to the European Council after the June elections.

For Draghi, an 'industrial deal' is missing that can respond in particular to the challenges posed by China and the United States. The first “aims to capture and internalize all parts of the green and advanced technology supply chain and is ensuring access to the necessary resources.” With a “rapid expansion of supply that is leading to significant excess capacity in multiple sectors and threatening to weaken our industries”. The United States, for its part, «is using a large-scale industrial policy to attract high-value domestic manufacturing capabilities within its borders – including that of European companies – while using protectionism to exclude competitors and deploying its geopolitical power to reorient and protect supply chains.

The European picture drawn by Draghi is alarming. «We lack a strategy for how to keep pace in an increasingly cutthroat race for leadership in new technologies. Today we invest less in digital and advanced technologies than the United States and China, including for defense, and we have only four global European technology players among the top 50 globally. We lack a strategy for how to protect our traditional industries from an unlevel global playing field caused by asymmetries in regulations, subsidies and trade policies. A case in point is energy-intensive industries,” she explained.

«In other regions, these industries not only face lower energy costs, but also face a lower regulatory burden and, in some cases, receive massive subsidies that directly threaten the ability of European companies to compete. Without strategically designed and coordinated policy actions, it is logical that some of our industries will reduce production capacity or relocate outside the EU,” the former ECB number warned.

«The second strand concerns the provision of public goods. Where there are investments from which we all benefit, but which no country can complete alone, we have good reasons to act together, otherwise we will not deliver adequate results in relation to our needs: we will not deliver satisfactory results in terms of climate, for example in defense , and also in other sectors.”

Finally, resources. «Once these public goods have been identified, we must also give ourselves the means to finance them. The public sector has an important role to play and I have already talked about how we can better use the EU's joint lending capacity, especially in sectors such as defence. But most of the investment gap will have to be covered by private investment. The EU has very high private savings, but they are mostly channeled into bank deposits and do not end up financing growth as they could in a broader capital market. This is why advancing the Capital Markets Union is an indispensable part of the overall competitiveness strategy.”

For Draghi «we cannot afford the luxury of delaying the answers to all these important questions until the next Treaty change. To ensure coherence between different policy instruments, we should be able to develop a new strategic instrument for economic policy coordination now. And if we find that this is not feasible, in specific cases, we should be prepared to consider proceeding with a subset of Member States. For example, enhanced cooperation in the form of a 28th regime could be a way forward for the Capital Markets Union to mobilize investments. But as a rule, I believe that the political cohesion of our Union requires that we act together – if possible always. And we must be aware that political cohesion itself is today threatened by changes in the rest of the world. Restoring our competitiveness is not something we can achieve alone, or just by beating each other. It requires us to act as the European Union in a way we have never done before. Our rivals are ahead of us because they can act as a single country with a single strategy and align all the necessary tools and policies behind it. If we want to match them, we will need a renewed partnership between Member States, a redefinition of our Union that is no less ambitious than what the Founding Fathers did 70 years ago with the creation of the European Coal and Steel Community.”

“And we lack a strategy to ensure we have the resources and inputs we need to realize our ambitions without increasing our dependencies. We rightly have an ambitious climate agenda in Europe and ambitious targets for electric vehicles. But in a world where our rivals control many of the resources we need, that agenda must be combined with a plan to protect our supply chain, from critical minerals to batteries to charging infrastructure.”
The reasons outlined by Draghi indicate that Europe has remained stagnant and not in step with changing times. “Our response has been limited because our organization, decision-making and funding are designed for yesterday's world: pre-Covid, pre-Ukraine, pre-middle east conflagration, before the return of great power rivalry.

But we need an EU suited to the world of today and tomorrow. And so what I propose in the report that the President of the Commission asked me to prepare is a radical change, because that is what we need.”
Ultimately, «we will have to bring about a transformation throughout the European economy. We must be able to count on decarbonized and independent energy systems; an integrated and adequate EU-based defense system; national manufacturing in the most innovative and rapidly growing sectors; and a leadership position in technological and digital innovation close to our production base.”

In his report, Draghi identifies ten macro-sectors of the European economy on which to intervene with specific reforms and tools for each. «However, three common threads for political interventions emerge in our analysis», she highlights. And they are: scalability, provision of public goods and provision of resources.

“In the defense sector, for example, the lack of scale is hindering the development of Europe's industrial capacity, a problem recognized in the recent European Defense Industry Strategy.” Another example given is telecommunications. Another example where we are not leveraging scale is telecommunications.

«We have a market of around 450 million consumers in the EU, but investments per capita are half those of the United States and we are late in the diffusion of 5G and fiber. One reason for this gap is that in Europe we have 34 mobile network groups – and this is a conservative estimate, in reality we have many more – often operating on a national scale, compared to three in the US and four in China. To generate more investment, we need to further rationalize and harmonize telecommunications regulations across Member States and support, not hinder, consolidation.”