The former director of the ECB proposes three axes to make European industry competitive on the world stage. In addition to closing the innovation gap with the United States and China, it calls for an action plan on decarbonisation and competitiveness, and reducing dependence on critical resources.
A much-anticipated document, which follows Enrico Letta’s document on the future of the single market. Mario Draghi hand report on the future of EU competitiveness for the European Commission. The former director of the ECB (European Central Bank) draws a frightening view of the economic decline of the EU, mainly due to the slowdown in productivity in Europe. One figure illustrates the situation: in the last twenty years, GDP (Gross Domestic Product) has fallen by more than 15% compared to the United States. The EU still has some assets to reverse the trend. Three main areas of action are identified to transform these strengths into a productive and globally competitive European industry.
The first axis, and it is the most important: Europe must close the innovation gap with the United States and China, especially in advanced technologies. Because companies are mainly specialized in mature technologies at the moment, especially cars, where the potential for advancement is limited. Even if they missed the digital revolution led by the Internet, a new window of opportunity is now opening thanks to AI (Artificial Intelligence). It could enable the EU to correct its deficits in innovation and productivity, and restore its manufacturing capacity.
To achieve this, the report recommends the creation of a Research and Innovation Union to guide common strategies and policies between the Member States. At the same time, it is essential to consolidate European university institutions at the forefront of global research. Measures must also be taken to support the difficult transition between invention and commercialisation, in particular by removing bureaucratic barriers to managing intellectual property rights.
The second lever to be acted upon relates to the implementation of a joint action plan regarding decarbonisation and the competitiveness of the economy. Certainly, Europe has ambitious climate objectives, but these must be accompanied by a coherent plan so that decarbonisation is a real opportunity for the EU, or it risks going against its competitiveness and growth. The report proposes, for example, the creation of a true Energy Union so that the decisions and functions of this cross-border market are taken centrally.
Industrial action plan for the automotive sector
Europe should also refocus its support for clean technology manufacturing, focusing on those with an advantage and strong growth potential, especially in the field of batteries. Although the EU is a world leader in some clean technologies such as wind turbines, electrolyzers and low-carbon fuels, Mario Draghi points out that he is not sure that he will always maintain this progress in the face of Chinese competition. In the short term, he recommends the implementation of an industrial action plan for the car sector in order to avoid a radical relocation of production outside the territory of Europe.
Securing and reducing dependencies on critical resources is the third area of action to be implemented. They are a prerequisite for sustainable growth, given rising geopolitical risks that could suddenly disrupt trade. In order to limit its vulnerabilities, the EU needs to develop a real foreign economic policy and in the short term to quickly implement the Critical Raw Materials Act (CRMA). The report recommends complementing this law with a comprehensive strategy covering all stages of the critical mineral supply chain, from extraction to recycling and processing.
The EU needs to take advantage of its national resource potential through mining, recycling and innovation in alternative materials. Unlike fossil fuels, it has deposits of certain critical raw materials, such as lithium in Portugal. Strategic dependencies also extend to critical technologies and particularly to the semiconductor sector. Although building large foundries seems unrealistic due to the investment levels required, Europe should maximize its collective efforts to strengthen innovation and its presence in the highest chip segments.
To achieve all the objectives of this report and its 170 proposals, a minimum additional investment of almost 800 billion euros, or between 4.4 and 4.7% of the EU’s GDP, is required. To finance it, Mario Draghi proposes the creation of a Capital Union, so that private savings can be made available across Europe.