Mario Draghi's Radical Vision for Europe's Economic Future

Mario Draghi, former President of the European Central Bank (ECB) and former Italian Prime Minister, is preparing to unveil a sweeping plan aimed at revitalizing the European Union's competitiveness on the global stage. The plan, described by Draghi as a call for "radical change," will be presented privately to the European Parliament's political groups this week, with a full public release expected later in September.

Draghi's involvement was initiated by European Commission President Ursula von der Leyen, who tasked him with developing a comprehensive report on how European industry could regain its competitive edge amid an increasingly complex geopolitical environment. The resulting report, reportedly running over 400 pages, tackles a wide range of sectors including energy, defense, and trade, and lays out a series of proposals for strengthening European infrastructure and governance.

A Radical Shift in Focus

For decades, European economic policy has been marked by a fragmented approach, with individual member states often competing against one another rather than collaborating toward shared goals. Draghi argues that this inward-looking focus has prevented Europe from recognizing the true sources of its economic stagnation: a lack of investment in innovation, a failure to adapt to the rapidly shifting global economic order, and an over-reliance on external partners for critical resources and technologies.

Speaking at a conference on the European Pillar of Social Rights, Draghi outlined his view that Europe's current economic model is outdated.

"Our organization, decision-making, and financing structures are designed for the world of yesterday," he said, "pre-Covid, pre-Ukraine, pre-return of great power rivalry. We need an EU that is fit for today’s and tomorrow’s world."

At the core of Draghi's plan is a reorientation of EU economic policy toward three key priorities: enabling scale, providing public goods, and securing essential resources and inputs. Each of these priorities is essential to transforming Europe into a cohesive economic entity capable of competing on the global stage.

The Scale Advantage

Draghi's first major point of emphasis is the need to leverage Europe's natural size advantage. While the EU, with its 27 member states, is one of the largest economic entities in the world, internal fragmentation has prevented it from fully capitalizing on its scale. In sectors such as defense and telecommunications, for example, a lack of coordination and joint procurement has left European companies at a disadvantage compared to their American and Chinese counterparts.

In the defense industry, Draghi notes, only 20% of procurement spending in Europe is done collaboratively, compared to 80% in the United States. Similarly, in telecommunications, Europe lags in investment per capita in 5G and fiber deployment, partly due to the presence of dozens of mobile network operators across the continent, compared to only a handful in the US and China.

Draghi argues that by streamlining regulations, promoting consolidation, and fostering a more integrated internal market, Europe could create the conditions necessary for its firms to scale up and compete more effectively. "We have the same natural size advantage as our major competitors, but fragmentation is holding us back," he said.

Public Goods and Private Investment

The second pillar of Draghi's strategy is the provision of public goods—investments that benefit all EU member states but are currently underfunded due to a lack of coordination. He cites energy infrastructure, such as cross-border interconnections, and supercomputing capabilities as examples where a more coordinated approach could yield significant benefits.

To finance these public goods, Draghi suggests a mix of public and private investment. While he acknowledges the need for better utilization of the EU's joint borrowing capacity, particularly in sectors like defense, he emphasizes the critical role of private capital. The EU, he points out, has a high level of private savings that are not being channeled into productive investments. Advancing the Capital Markets Union (CMU) is, therefore, an indispensable part of his proposed competitiveness strategy.

Securing Strategic Resources

The third component of Draghi's plan addresses Europe's vulnerabilities in securing essential resources and inputs. The EU's ambitious climate agenda and its targets for electric vehicles, for example, will require a reliable supply of critical minerals and materials that are currently sourced primarily from outside the bloc. To mitigate this dependency, Draghi calls for a comprehensive strategy covering all stages of the supply chain, from mining and refining to manufacturing and recycling.

He also proposes the creation of an EU Critical Mineral Platform to coordinate joint procurement and secure diversified supply lines. Furthermore, Draghi underscores the importance of addressing the EU's labor market shortages, particularly in high-skill sectors.

"With ageing societies and less favorable attitudes towards immigration, we will need to find these skills internally,"

he argues, urging a partnership between governments, educational institutions, and social partners to adapt the labor market to the digital age.

The Need for Urgent Action

Draghi’s call for radical change comes at a time when Europe faces significant economic challenges. The EU's growth rate has lagged behind that of the United States and China for much of the past three decades, largely due to insufficient investment in innovation and a failure to adapt to the rapidly changing global economy. In 2023, EU GDP growth was 1.1%, compared to 2.6% in the US and 4.5% in China, according to Eurostat. Additionally, the EU’s share of global R&D spending has fallen to just 20%, while the US and China account for 29% and 23% respectively.

Draghi’s report, therefore, represents a significant intervention at a critical juncture for the European economy. His proposals are ambitious, and their implementation will require a level of coordination and political will that has often eluded the bloc. Yet, as Draghi himself notes,

"Our rivals are stealing a march on us because they can act as one country with one strategy and align all the necessary tools and policies behind it. If we are to match them, we will need a renewed partnership among Member States."

Conclusion

As Draghi prepares to present his report to the European Parliament, it is clear that he is advocating for nothing less than a fundamental transformation of the EU's economic model. His vision calls for a Europe that is not only more competitive but also more cohesive and strategically aligned. The stakes could not be higher: in a world of shifting power dynamics and economic uncertainty, Europe must either adapt to new realities or risk being left behind.