The European Union needs a much more coordinated industrial policy, quicker decisions and massive investments if it wants to keep pace economically with the United States and China, according to a report by Mario Draghi presented in early September. According to Janusz Lewandowski, a Member of the European Parliament (MEP), without simplifying the over-regulated regulations, the Union will lose competitiveness to its rivals, and companies will relocate their headquarters to them. Poland, during its presidency in the Community, could play a significant role in deregulation.
The European Commission requested a report from Mario Draghi, former head of the European Central Bank and Italy’s Prime Minister, a year ago. It aimed to address how the EU, in an era of green transformation and digitalization, can maintain economic competitiveness in conditions of deglobalization and increased competition.
Mario Draghi strikes a very alarmist tone that Europe is sinking, and Draghi has his credibility. He is regarded as the man who saved the eurozone during the financial crisis, so his report should be taken very seriously. I remember my own recipes for the crisis of innovation in Europe, when I was a Commissioner, which involved some deregulation. Nothing has come out of either, so I expect Draghi’s report to fare better than the Lisbon strategy and all deregulation and simplification resolutions.
The report suggests that the current situation in the EU is very worrying as the economic growth in Europe has long been slowing down. The conditions have now changed: trade protectionism will continue to increase; deliveries of cheap energy from Russia have ended; defense spending has increased, and the population of the Old Continent is shrinking. Especially Germany made huge mistakes, highly dependent on raw material supplies from Russia, especially cheap gas. In the second quarter of 2024, the EU’s GDP increased by 0.8 percent year on year, compared to 0.7 percent in the first quarter. Comparatively, economic growth in the United States was 2.9 percent in the first quarter and 3.1 percent in the second.
In the meantime, the gap between us and the United States has widened, and China has joined the competition, so these rather alarmist tones are appropriate. We are competing with the United States now precisely on regulations that will enable innovative Europe. However, as we multiply rather complex regulations, companies escape to the United States, where everything is straightforward because either you get the money directly or you get very transparent, simple tax breaks. Draghi is really very much inspired by the success of the ecosystems of the US East and West coasts. I do not know whether it is really possible in this 27-member EU ecosystem, but I very much wish this report is taken seriously by the Polish presidency.
Draghi underlined in his almost 400-page report that the European Union needs investments amounting to 750-800 billion euros per year or up to 5 percent of GDP. He named three sectors that can stimulate economic growth in Europe: innovation based on advanced technologies, integrating climate goals with the industry and investing in security and reducing Europe’s dependence on other countries. He recommended issuing joint debt akin to the post-pandemic recovery fund.
China took excellent advantage of its presence in the World Trade Organization with US approval but without reciprocity. They are ready to manufacture everything on their own, taking advantage of the international market by subsidizing exports. Protection measures have been implemented now, not theft of intellectual rights as it was before. Our weapon is tariffs. As Europe 27 countries, we are still the most capacious market in the world. Hence, a protective barrier is efficient as it indeed restricts access to this market. Mainly subsidized electric cars are being resisted, and we need to defend ourselves against it, preferably by creating our own automotive industry.
However, more and more European automotive companies are closing, and some are being transferred to other – more favorable for them – markets. Europe cannot be an ageing continent, sent into retirement, which is superior in luxury goods, champagnes, cosmetics, because we have it and we will preserve it, but that is not enough, says Janusz Lewandowski.
