EU Faces Existential Challenge: Proposed Major Investments Necessary to Compete with US Economy
A recently released report underscores an urgent necessity for the European Union (EU) to significantly increase funding through joint borrowing mechanisms to enhance investments, as it risks falling behind the United States. The report, released on September 9, highlights a critical challenge faced by the bloc in boosting productivity and competitiveness amid a backdrop of escalating global uncertainties and economic pressures. EU Commission President Ursula von der Leyen had tasked former European Central Bank head Mario Draghi with exploring strategies to bolster the 27-nation union's competitive edge.
The report advocates for an investment increase of at least 750 to 800 billion euros, roughly 5% of the EU's gross domestic product (GDP). With von der Leyen recently securing a second five-year term at the helm of the EU's executive branch, she is keen to leverage the findings of this report to drive her agenda.
Draghi emphasized the severity of the current geopolitical landscape, stating, "For the first time since the Cold War, we must genuinely fear for our self-preservation." His remarks came during a press conference in Brussels, where he urged for a coordinated and unified response among EU member states.
In unveiling his comprehensive blueprint for a new industrial strategy, which comprises around 170 individual proposals, Draghi stressed the enormity of the investment needs involved and the radical shifts required to achieve them. Drawing attention to the EU's historic COVID recovery fund, he suggested that the bloc might need to issue new common debt instruments to finance joint investment projects aimed at enhancing both competitiveness and security. This past summer, the EU had previously resorted to joint borrowing, totaling 800 billion euros, to assist member nations' economies ravaged by the pandemic. However, such joint funding initiatives remain contentious; support is strongest from France, while countries like Germany and the Netherlands express concerns over potential financial liabilities to southern European nations.
Draghi acknowledged the challenges associated with his proposals, indicating that common loans would be viable only if the necessary political and institutional frameworks were established. Another recommendation was to better harness private capital within the EU, advocating for a renewed effort toward establishing a capital markets union, which has faced persistent delays.
The report also outlined the strategic vulnerabilities facing Europe in a global economy increasingly characterized by competition, as access to foreign markets diminishes and rivals raise barriers to free trade. It underlined a significant economic growth disparity that has emerged between the EU and the US, primarily attributed to a more pronounced slowdown in productivity growth within Europe.
One of the stark warnings in Draghi's report is Europe's lag in the realm of emerging technologies pivotal for future growth, with only four European firms making it to the world's top 50 tech companies. Stressing the imperative for innovation, Draghi stated, "Europe must become a place where innovation flourishes," adding that the EU is currently underperforming its potential. "If we acted more cohesively as a community, we could achieve much more," he emphasized, pointing to a lack of focus on key priorities and a failure to effectively combine resources to generate scale and coordinate critical policies.
The implications of Draghi's report remain profound as the EU deliberates its next steps in an increasingly competitive global landscape. The challenge ahead will require not only robust investment and strategic collaboration but also a reevaluation of fiscal policies and priorities that align with the shared goals of all member states.
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