The European economy is facing an “existential challenge”, condemned to a “slow agony” if no ambitious recovery measures are taken. In his report, commissioned by the European Commission a year ago and released on September 9, Mario Draghi wants to be alarmist.
It must be said that the drop in the European economy compared to its American competitor is striking. According to World Bank data, the GDP gap between the two continents has doubled in twenty years, reaching 30% in 2023. “Real disposable income per capita has increased almost twice as much in the United States as in Europe since 2000,” Mario Draghi observes in his report.
To halt this decline, the Italian economist advocates radical investment measures to boost EU productivity in key sectors. “If Europe fails to become more productive, we will be forced to make choices. We will not be able to become a leader in new technologies, a model of climate responsibility and an independent player on the world stage. We will not be able to finance our social model. We will have to scale back some, if not all, of our ambitions,” he explains.
“At a time when the world is industrializing, Europe is still affected by deindustrialization”
In his document of nearly 400 pages, Mario Draghi thus formulates 170 proposals to revive the European economy in clearly identified sectors: energy, the automobile industry, defense and even artificial intelligence. Priorities set on “areas that matter”, explains the economist, so as not to disperse and dilute the efforts of the 27. Because today, the EU “formulates common objectives”, without however setting “clear priorities or following them up with concerted political actions”, he deplores.
This observation of a lack of a common industrial strategy for all Member States arises in all sectors, notes Anne-Sophie Alsif, Chief Economist at BDO France: “At a time when the world is industrializing, Europe is still hit by deindustrialization. Unlike the United States and China, which have implemented long-term policies, the 27 Member States have very specific and scattered reindustrialization strategies.”
For the economic forecasting specialist, the European economy will only become competitive again at the cost of a change of model. “The European Union was built economically with the objective of favoring the consumer, of having the lowest prices, with spending centered on policies of checks and subsidies. Today, the rest of the world is changing its prism, the United States is concentrating its investments on the producer and the creation of added value,” explains Anne-Sophie Alsif.
Mobilizing European savings, a project that is stalling
To catch up, the European Union must therefore agree to “massive and unprecedented” investments, Mario Draghi observes: between 750 and 800 billion euros per year, or more than 4% of its GDP. The economist suggests using several levers to raise this sum, first and foremost that of European savings.
“This is the wealth of the European Union, something that neither China nor the United States have. By mobilizing between 20 and 30% of these savings, we could reach this objective of 800 billion,” estimates Anne-Sophie Alsif. A substantial financial windfall, but very difficult to mobilize at the moment, because it would require the establishment of a “capital markets union”. The EU has been working on it for more than ten years, without success.
“The capital markets union is about creating common, harmonized rules between all member states, which would allow, for example, the French to invest as easily in their country as in the Italian economy. Today in Europe, capital mobility is not as fluid as it can be in the United States, where everyone can invest just as well in New York as in Ohio,” says Anne-Sophie Alsif. But, faced with the significant work of harmonizing the rules of each state, while some members of the eurozone such as Luxembourg are dragging their feet, the project is stalling.
Convincing the “frugal” of the usefulness of a joint loan
Faced with the urgency of the situation, Mario Draghi therefore suggests another avenue, less difficult to implement but just as controversial: resorting to a common loan, on the model of the post-Covid recovery plan. A proposal that arouses opposition from the so-called “frugal” countries, led by Germany, traditionally reluctant to the idea of European Union debt. “By assuming a common debt, we will not solve any structural problems,” immediately denounced German Finance Minister Christian Lindner on X. “Companies are hampered by bureaucracy, they have difficulty accessing private capital. This is what we must work on,” he added.
For its part, France, which had initiated this joint loan at the time of Covid, will not be able to exert the same influence today to convince its “frugal” neighbors. In the midst of a period of political instability, the country has also been placed in excessive deficit procedure by the European Commission.
The proposal for a joint loan has not yet been officially supported by Ursula von der Leyen. However, the President of the European Commission praised Mario Draghi’s work, assuring that a number of his proposals would be included in the mission letters of the future European commissioners, whose names are due to be revealed in mid-September.
