{"id":5327,"date":"2024-11-21T15:01:40","date_gmt":"2024-11-21T14:01:40","guid":{"rendered":"https:\/\/www.rivistaeco.com\/?p=5327"},"modified":"2024-11-21T15:01:40","modified_gmt":"2024-11-21T14:01:40","slug":"the-impossible-mission-of-the-draghi-report","status":"publish","type":"post","link":"https:\/\/www.rivistaeco.com\/en\/2024\/11\/21\/the-impossible-mission-of-the-draghi-report\/","title":{"rendered":"The Impossible Mission of the Draghi Report"},"content":{"rendered":"

More technology and more people: this is Draghi\u2019s recipe for avoiding Europe\u2019s “slow agony.” While the objectives are clear, the former prime minister entrusts implementation to flexible policies able adapt to varying contexts and circumstances. The problem, however, is that at this moment, there are no leaders or coalitions of countries capable of turning the “Draghi programme” into a concrete political initiative.<\/span><\/i><\/p>\n

To prevent a “slow agony” in the European Union, we need a technological sector comparable to that of the United States, and we need more people\u2014either more births or more immigrants. The 400 pages of Mario Draghi\u2019s report on the future of European competitiveness, commissioned by the European Commission, are filled with analysis and proposals. But ultimately, the central issue of Europe\u2019s relative decline comes down to this: there\u2019s no European Silicon Valley, and there aren\u2019t enough immigrants.<\/span><\/p>\n

The Numbers Behind Europe\u2019s Decline<\/b><\/h3>\n

This decline is measurable: the gap in GDP (at 2015 prices) between the European Union and the United States was 15% in 2002; by 2023, it had reached 30%. In terms of real disposable income\u2014what families can actually spend\u2014since 2000, US growth has been double that of Europe. About 70% of the difference in per capita GDP (taking into account that the US has 100 million fewer people than the EU) can be explained by a productivity gap.<\/span><\/p>\n

However, the Draghi report makes it clear that this productivity gap does not stem from characteristics typical of the European social model\u2014such as excessive worker protections, overly generous holiday and benefit policies, or the size of enterprises and bureaucracies. Across all sectors, European productivity grew at a rate comparable to that of the US from 2000 to 2019\u2014except in one: ICT (Information and Communication Technology), which includes everything from computer production to software development. Over the last two decades, the US has seen the rise of companies like Facebook, Google, PayPal, and OpenAI. Of the top 50 tech companies in the world, only four are European. The EU\u2019s presence in the tech sector is not increasing but rather declining, as the Draghi report warns.<\/span><\/p>\n

Europe is trapped in what\u2019s called the “intermediate technology trap,” a concept outlined by a study from the Institute for European Policymaking at Bocconi, CESifo in Munich, and the Toulouse School of Economics, which Draghi references in his report. Essentially, private research and development in the EU is directed toward innovation in mature industries like the automotive sector, rather than creating entirely new digital markets, as seen in the US.<\/span><\/p>\n

Even the rare genuinely innovative companies born in Europe tend to move to the US for growth. Between 2008 and 2021, the EU produced 147 “unicorns” (companies valued at over $1 billion), but 40 of these moved their headquarters abroad, according to the Draghi report.<\/span><\/p>\n

Europe lacks a true capital market, meaning there are no venture capital funds willing to take the necessary risks to finance new businesses. Everything depends on banks, and banks prefer to lend money to those who can provide collateral, such as machinery, buildings, or reliable revenue forecasts\u2014all things tech startups typically lack. So, what should be done?<\/span><\/p>\n

Proposals for Europe’s Future<\/b><\/h3>\n

The Draghi report offers numerous proposals, ranging from a competition for talent (by hiring directly as European officials) to the creation of elite universities, the integration of capital markets, and public funding for research focused on radical innovation, modelled after the American agency DARPA.<\/span><\/p>\n

Without a top-tier tech sector, the EU has no future. An increase in labour productivity like the one seen over the past decade\u2014only 0.7% per year\u2014will barely offset the gradual decline in the workforce that is due to demographic trends. By 2040, projections indicate that the EU will lose 2 million workers every year. Fewer workers mean lower production, less tax revenue, lower GDP, and fewer contributions to welfare systems, all while the rest of the population ages.<\/span><\/p>\n

To avoid decline, the European economy as we know it today must increase productivity. But without radical changes, it has no prospects for growth or evolution.<\/span><\/p>\n

In his report, Draghi carefully avoids politically explosive topics, though the implications are clear. To compensate for the 2 million workers disappearing each year, the EU would need 2 million more\u2014ideally, immigrants, and preferably skilled ones. This is an arithmetically obvious concept, recently reiterated by the Governor of the Bank of Italy, Fabio Panetta, yet predictably, it faces resistance, particularly from right-wing groups across Europe.<\/span><\/p>\n

800 Billion and the Politics Involved<\/b><\/h3>\n

The former ECB president estimates that steering the European economy in the right direction would require at least \u20ac800 billion per year for a true digital, ecological, and geopolitical transition. This includes ensuring a minimum level of autonomy in strategic supplies like energy, which many believe is necessary in an increasingly hostile global environment.<\/span><\/p>\n

This would be an unprecedented effort. The share of European GDP dedicated to investment would need to rise by 5 percentage points per year, reaching levels not seen since the 1960s and 1970s. The Marshall Plan, through which the US helped revive Europe\u2019s economy after World War II (between 1948 and 1951), amounted to 1-2% of the GDP of beneficiary countries.<\/span><\/p>\n

So where would this money come from? On this point, Draghi remains intentionally vague. He does not advocate for a new issuance of common debt, similar to the post-pandemic initiative to finance the Next Generation EU plan (of which Italy is the largest beneficiary). Resistance to new risk- and burden-sharing remains too high in key countries like Germany and the Netherlands. Draghi doesn\u2019t see common debt as a panacea for all of Europe\u2019s problems but views it as one tool among many. Integrating capital markets and developing ultra-low-risk European sovereign bonds could solve many financing and development issues in European finance.<\/span><\/p>\n

The funds could come from various sources: the EU budget, with increased contributions from member states; existing institutions like the European Stability Mechanism; investments from individual governments through the issuance of national bonds; or the private sector, if investment conditions become more attractive. Without this funding, however, decline is assured.<\/span><\/p>\n

Clear Goals, Flexible Policies<\/b><\/h3>\n

Draghi’s approach emphasises clear goals but flexible principles and policies that can adapt to different contexts and circumstances. This philosophy has been partially tested by Ursula von der Leyen\u2019s Commission over the past few years\u2014amid the pandemic and the war\u2014but it challenges the EU\u2019s development philosophy of recent decades.<\/span><\/p>\n

“Trade policy,” Draghi writes in his report, “must be fully aligned with industrial strategy.” This means pursuing trade integration and the benefits of competition when useful, but also raising barriers, imposing tariffs, requiring local content for certain components, and using subsidies when necessary.<\/span><\/p>\n

In this new post-Western phase of globalisation, the EU must become aware of its vulnerabilities and act accordingly. It must define which “strategic industries” to protect and defend them with tactics once typical of emerging economies like China.<\/span><\/p>\n

What Will Happen to the Report?<\/b><\/h3>\n

The Draghi report is not a government programme but rather a mirror in which European institutions and member states can reflect to better understand the problems they already face to varying degrees. Draghi presented his report on September 9, several months past the deadline. It arrived after the European elections, the negotiations over top appointments, and even after the much less ambitious speech that Ursula von der Leyen gave to secure a second term from the European Parliament.<\/span><\/p>\n

Many of Draghi’s ideas will remain part of the debate, and some may be implemented during the next crisis when unconventional policies are needed. However, with Emmanuel Macron\u2019s France weakened by political crisis and Olaf Scholz\u2019s German government coalition hampered by budget constraints, the traditional Franco-German engine of Europe is stalled. Meanwhile, Italy, like Spain or Poland, lacks the initiative or leadership to fill the void.<\/span><\/p>\n

As a result, there is no leader or coalition of countries currently capable of taking up Draghi\u2019s suggestions and turning them into concrete political initiatives. Like Enrico Letta\u2019s parallel report on the single market, Draghi\u2019s report risks becoming another list of missed opportunities and unheeded warnings.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

More technology and more people: this is Draghi\u2019s recipe for avoiding Europe\u2019s “slow agony.” While the objectives are clear, the former prime minister entrusts implementation […]<\/p>\n","protected":false},"author":8574,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1],"tags":[],"coauthors":[191],"class_list":["post-5327","post","type-post","status-publish","format-standard","hentry","category-non-categorizzato"],"acf":[],"yoast_head":"\nThe Impossible Mission of the Draghi Report - Rivista Eco<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.rivistaeco.com\/en\/2024\/11\/21\/the-impossible-mission-of-the-draghi-report\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Impossible Mission of the Draghi Report - 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