The European Union is at a critical crossroads, facing the threat of economic stagnation and a “slow and agonising decline,” according to a stark report by Mario Draghi, the former Italian prime minister and ex-president of the European Central Bank. In his comprehensive report, Draghi calls for an urgent spending boost of €800bn a year to revive the EU’s economy, combat stagnation, and preserve the bloc’s global standing.

Draghi’s report highlights how the combination of the COVID-19 pandemic, the Ukraine war, and global trade tensions has left the EU vulnerable. He argues that these factors have significantly disrupted international trade, putting Europe at a disadvantage and creating an urgent need for large-scale investment to address long-standing structural weaknesses. “We are already in crisis mode and to ignore this is to slide into a situation you don’t want to have,” Draghi warned.

A Call for Massive Investment

According to the report, the EU requires additional investment of €750bn to €800bn annually, equivalent to 5% of its total economic output. This infusion of capital is essential for Europe to build a more resilient economy, regain productivity growth, and transition towards a greener, digital future. Draghi emphasized that years of slowing economic growth could no longer be ignored, urging EU leaders to coordinate policies to avoid further decline.

“Growth has been slowing down in Europe for a long time and we can’t ignore it any longer,” Draghi said, pointing out that Europe’s productivity was “weak, very weak,” and had been in decline since the early 2000s.

Energy and Trade Challenges

A central focus of the report is Europe’s reliance on external energy sources. Draghi highlighted how the energy crisis, worsened by the war in Ukraine, demonstrated the need for the EU to reduce its dependence on other continents for vital resources. He also pointed to a slowing world trade environment, where markets had become less open to European countries. Europe, he stressed, must invest in new industries and modernize old ones, including defence spending, to cope with these challenges.

Another issue plaguing the EU is its declining population, with birth rates dropping sharply. For the first time, the EU cannot rely on population growth to boost economic output, making investment-driven growth even more urgent.

EU’s Declining Global Competitiveness

Draghi’s report paints a worrying picture of Europe’s declining competitiveness on the world stage, particularly compared to the US and China. Over the past two decades, EU growth has consistently lagged behind the US, while China’s state-subsidized industries have outcompeted European firms. Draghi noted that 30% of EU unicorns—startups valued at more than €1bn—have moved abroad, primarily to the US, citing the barriers to scaling up in Europe.

“We are also hindering growth in our traditional sectors,” Draghi said, highlighting how the EU’s industrial structure remains static, populated by mid-technology companies that have not evolved in over two decades. “The leading firms in research and investment spending are the same ones we had 20 years ago – our cars.”

Funding the Future

In response to Draghi’s call for massive investment, European Commission President Ursula von der Leyen hinted that the EU may need to tap into international bond markets to raise the necessary funds. “Common European priorities need to be funded by common European money,” she said, signaling a potential shift in EU borrowing policies.

As investor confidence in the eurozone continues to drop, with the Sentix investor confidence index falling for the third month in a row, Draghi’s report underscores the urgency of coordinated action to prevent the EU economy from tipping into recession.

(Adapted from TheGuardian.com)

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