Will the Draghi report boost European competitiveness?

The European Commission unveiled the much-anticipated report on ‘The Future of European Competitiveness’ this week, authored by Mario Draghi, former President of the European Central Bank and former Prime Minister of Italy. This blog provides an overview of the report and its horizontal recommendations; read our second blog on the Draghi report’s sectoral proposals.

The Draghi report offers a comprehensive analysis of the strategic steps required to safeguard Europe’s competitive position on the global stage. It delves into the EU’s key challenges, emphasising growth, innovation, decarbonisation, and security, while outlining over 170 policy proposals. Although the report is thorough, many have noted that it largely re-emphasises existing EU initiatives. However, it makes a significant impact with its bold governance reform recommendations for specific sectors like energy and digital technologies, offering fresh insights into how Europe’s institutions can become more agile and responsive without reopening treaties.

At the core of the report is the acknowledgement that European growth has been slowing for a long time, compounded by global shifts in trade, energy security, and demographic challenges. The report stresses that, without addressing productivity gaps swiftly, the EU risks compromising its position as a leader in areas such as technology, climate responsibility, and global security.

Competitiveness strategy

The first part of the report presents an overarching competitiveness strategy for Europe and outlines three crucial transformations needed to address Europe’s growth problem:

• Closing the innovation gap between the US and China, especially in advanced technologies, is essential for Europe to lead in fields like AI, digitalisation, and clean energy.
• Decarbonisation and competitiveness must go hand in hand, focusing on reducing Europe’s dependence on fossil fuels and ensuring the EU remains a leader in clean technologies.
• Increasing security and reducing dependencies, particularly in defence and energy, will be critical for Europe’s economic sovereignty.

Financing these transformations will require significant investment—€750-800bn annually—necessitating public and private sector support. While the private sector will play a critical role, the report stresses that public sector support will also be essential, including expanding the Capital Markets Union (CMU) to mobilise private capital more effectively.

Horizontal and sectoral recommendations

The second part of the report examines sectoral policies in ten critical areas such as energy, digital technologies, raw materials, defence, and transport. It presents detailed proposals for how Europe can foster competitiveness in each sector. 

Beyond sector-specific policies, the Draghi report outlines several horizontal recommendations that cut across industries and are designed to drive Europe’s long-term competitiveness. These include fostering innovation, closing the skills gap, sustaining investment, reforming competition policy, and strengthening EU governance:

1) Accelerating innovation: Draghi calls for placing innovation at the heart of the EU’s strategic priorities. Key actions include revising financial regulations, such as Solvency II, to unlock more private capital for high-tech investments, and expanding the mandate of the European Investment Bank to invest directly in strategic sectors.

2) Closing the skills gap: Draghi proposes creating a ‘Union of Skills’ that focuses on lifelong learning and vocational training alongside a new EU-level visa programme to attract highly skilled workers. 

3) Sustaining investment: Draghi advocates for issuing common EU debt to fund large-scale joint investment projects, building on the Next Generation EU initiative, and expanding the EIB’s role in supporting high-risk, strategic projects.

4) Revamping competition policy: Draghi argues that competition policy must adapt to the digital age, with a focus on fostering innovation and long-term competitiveness. He recommends updating merger review processes and state aid regulations to reflect evolving market dynamics and encouraging cross-border collaboration on critical projects. Streamlining decision-making times for competition cases is also essential to keep pace with fast-moving industries.

5) Strengthening governance: The report calls for governance reforms to make the EU more agile, focusing on accelerating decision-making and reducing regulatory complexity. Draghi advocates extending qualified majority voting to more areas to overcome decision-making bottlenecks, while proposing the appointment of a Commission Vice-President for Simplification to reduce regulatory burdens on businesses and streamline EU rules.

Next steps

Draghi’s report will feed into the new Commission’s political agenda for the next five years. Many of his ideas already feature heavily in the mission letters sent by Commission President Ursula von der Leyen to Commissioner-designates this week. More information on the appointment of the new Commission can be found here.