Draghi urges radical EU reform requiring extra 800 billion yearly
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An extensive report led by Mario Draghi concludes that EU priorities must include lowering energy prices, strengthening competitiveness, coordinating industrial policy, and increasing defense investment.
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Mario Draghi attends a debate at the Senate in Rome on July 20, 2022. (AP)
According to a much-anticipated study by economist and politician Mario Draghi, the European Union needed drastic reforms through a new industrial strategy to maintain its competitiveness, increase social equality, and fulfill climate commitments.
The European Commission estimates that these suggestions would need an extra 750 billion to 800 euros annually.
Supply chain security and defense spending are also listed as areas of concern, as the EU's attempts to increase geopolitical importance, social equity, and decarbonization are jeopardized by slow economic development and productivity in comparison to the US and China.
The extensive study, led by Draghi, concluded that EU priorities must include lowering energy prices, strengthening competitiveness, coordinating industrial policy, and increasing defense investment.
The EU must also adjust to a world where "dependencies are becoming vulnerabilities and it can no longer rely on others for its security," the research said, citing the EU's reliance on China for essential minerals and China's reliance on the EU to absorb its industrial overcapacity.
In addition, the EU should "develop a genuine "foreign economic policy" that coordinates preferential trade agreements and direct investment with resource-rich nations, the building up of stockpiles in selected critical areas, and the creation of industrial partnerships to secure the supply chain of key technologies."
The EU must ensure that dependency remains in check and focus on leveraging domestic resources by advancing mining, recycling, and innovation in alternative materials. Key goals also include fully implementing the single market, which serves 440 million consumers and 23 million businesses, and minimizing trade friction.
Additionally, the EU should make sure that its competition policy does not hinder its objectives, particularly in the technology sector.
The European alliance must also accommodate "massive investment needs unseen for half a century in Europe," using a combination of corporate and public financing. According to the paper, the EU is now suffering from an "innovation deficit" that must be addressed by reforms to research and development financing and policies.
Across numerous sectors, the study advocates for more policy coordination and funding focus. In clean technology development, for example, it discovered that financial assistance was fragmented among many programs, while businesses struggled to compete worldwide, despite Chinese subsidies and the massive domestic support provided by the United States Inflation Reduction Act.
In terms of steps to mobilize private finance, the report suggests that the European Securities and Markets Authority (ESMA) be transformed from a co-ordinator of national regulators to a single regulator for all EU securities markets capable of focusing on overarching goals, similar to the Securities and Exchange Commission (SEC) of the United States.
Draghi's evaluation emphasizes that EU investments are hampered by the EU budget's constraints, lack of focus, and risk aversion.
The research is anticipated to provoke major debate, but its implementation may be delayed owing to political fragmentation. Analysts are cautious of fast reforms, citing the difficulty of getting political support and Europe's internal issues.
