The European Union, facing a shrinking share of the global economy, needs to increase its spending by nearly $900 billion a year, according to a long-awaited report from Mario Draghi.
Mario Draghi, former president of the European Central Bank, was asked for a comprehensive analysis of the European Union’s competitiveness.
Europe must increase public investment by nearly $900 billion a year in sectors like technology and defense, according to a long-awaited report published Monday in response to growing anxieties about the continental economy’s lagging behind that of the United States and China.
The challenge for the European Union is “existential,” Mario Draghi, a former president of the European Central Bank, said on Monday in Brussels. If Europe cannot effectively compete and, in turn, provide its people with security and prosperity, he said, “it will have lost its reason for being.”
Mr. Draghi said that, to meet the objectives in his report, the European Union needed additional annual investment of up to 800 billion euros ($884 billion), an amount equivalent to about 4.5 percent of the European Union’s gross domestic product last year. By comparison, investment under the Marshall Plan from 1948 to 1951 was equivalent to about 1.5 percent of Europe’s economic output.
The analysis is the result of a yearlong study requested by the European Commission on the causes of Europe’s competitiveness crisis, and it will serve as a guide for policymakers in Brussels, who will soon meet to determine the next five-year strategic plan for the bloc’s 27 member states.
Conditions that have contributed to the continent’s prosperity have changed substantially since the coronavirus pandemic and Russia’s invasion of Ukraine. Cheap Russian gas is no longer available, and energy prices have soared. Those prices have come off their peak, but European companies still pay two to three times more for electricity than U.S. companies do, the report found.
The European Union has also acknowledged that it needs to significantly increase military spending.
At the same time, growth and investment have fallen behind that of the United States and China, the world’s two largest economies, which are both engaged in multibillion-dollar efforts to expand their tech and green industries.
Europe has experienced weak demand for its exports, especially from China, and its position in advanced technologies like artificial intelligence is declining: Only four of the world’s top 50 tech companies are European. Nearly a third of Europe-founded “unicorns,” or companies valued over $1 billion that were founded from 2008 to 2021, have relocated their headquarters abroad, mostly to the United States.
Armida van Rij, the head of the Europe program for the research group Chatham House, said that Mr. Draghi’s report was short on details about the source of the enormous investment required to reverse Europe’s economic decline.
“Where is the money going to come from?” Ms. van Rij said. “That’s really the bottom line of it, especially given Germany’s economy and economic situation and finances, where perhaps in the past, it might have led on that, but now it’s just not really in a position to be able to do that.”
Another way of raising money that Mr. Draghi favors — issuing more common debt — is contentious among member states.
To transform Europe’s economy, the European Union must develop an industrial strategy that includes a shared energy grid, joint military procurement as well as advanced training programs for workers. About a quarter of European companies said they had difficulty finding employees with the necessary skills, especially at the managerial level, the report found.
Noting that the bloc depends on a handful of suppliers like China for critical raw materials, the report also called for more preferential trade agreements and investment in countries that could serve as alternate suppliers.
Mr. Draghi’s report reiterated the call for European countries to be more coordinated in the policies they establish to address shortfalls in competitiveness. At the moment, barriers such as costly regulation can be burdensome.
“The amount of bureaucracy put forward by Brussels over the last couple of years has created a huge problem for Europe to remain competitive,” said Simone Tagliapietra, a senior fellow at the Bruegel Institute, a European think thank.
But the politics are more complicated now. Far-right parties that have been hostile to some of the European Union’s initiatives and wary of extending more power to Brussels are in government in several European countries and gained seats in the European Parliament’s elections this summer.
Many of Mr. Draghi’s proposals would require unanimous consent from member states, and several countries have voiced objections to some of the policies.
Political divisions within Germany and France, the bloc’s two biggest players, further complicate efforts to finance a long-term investment program.
“Can the Draghi report put the spotlight on that slow burning crisis enough in order to shake the E.U. out of its paralysis?” asked Nicolai von Ondarza, the head of Europe research at the German Institute for International and Security Affairs.
The gap in gross domestic product between the European Union’s 27 members and the United States, adjusted for inflation, widened to 30 percent in 2023 at 2015 prices, from just over 15 percent in 2002, mostly driven by lower productivity in Europe. A substantial part of the productivity gap is because some Europeans prefer to work fewer hours, according to a report by the McKinsey Global Institute.
Jenny Gross is a reporter for The Times in London covering breaking news and other topics.
Patricia Cohen writes about global economics and is based in London.
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