Report on Draghi's initiatives advocating for systemic change

In recent times, the foundations upon which Europe has built its global standing are being shaken. The previous global paradigm is fading, and the continent is grappling with slowing growth and numerous challenges.

One of the key areas of concern is the tech sector. While Europe still boasts strong education and health systems, robust welfare states, and a defence industry that, in parts, is renowned for its quality, the productivity gap between the EU and the US is largely attributed to this sector. Only four of the world's top 50 tech companies are European, and the continent largely missed out on the digital revolution led by the internet and the productivity gains it brought.

The report, which aims to lay out a new industrial strategy for Europe, emphasises the need for a common assessment of goals, risks, and trade-offs. It suggests that democratically elected institutions should be at the center of these debates, and a new stance towards cooperation is required to remove obstacles, harmonise rules and laws, and coordinate policies.

To digitalise and decarbonise the economy and increase defence capacity, the investment share in Europe will have to rise by around 5 percentage points of GDP. This ambitious target is crucial for Europe to remain competitive and maintain its global standing.

Another area of focus is increasing security and reducing dependencies. Europe is particularly exposed to geopolitical risks, with a reliance on a handful of suppliers for critical raw materials, especially China, and a high reliance on imports of digital technology. The report identifies the root causes of the EU's weakening position in key strategic sectors and presents a series of proposals to address them.

The defence industry in Europe is fragmented, hindering its ability to produce at scale and weakening Europe's ability to act as a cohesive power. To address this, the report suggests a need for a more integrated defence industry, with a focus on collaboration and joint projects.

The European Union aims to overcome slow growth and improve competitiveness by coordinating investments in modern, resilient, and sustainable infrastructure, particularly focusing on digitalization, decarbonization, and innovation in transport and energy sectors. The EU plans to finance joint projects through European funds like Horizon Europe and the European Fund for Competitiveness, combining public and private capital to support research, innovation, and market deployment of advanced technologies.

However, the EU's legislative process has an average time of 19 months to agree on new laws, from the Commission's proposal to the signing of the adopted act. This slow and disaggregated policymaking process is another barrier to progress. Europe must profoundly refocus its collective efforts on closing the innovation gap with the US and China, especially in advanced technologies.

Since 2000, real disposable income has grown almost twice as much in the US as in the EU. The era of rapid world trade growth looks to have passed, with EU companies facing both greater competition from abroad and lower access to overseas markets. To counteract this, Europe's exporters have managed to capture market shares in faster growing parts of the world, especially Asia.

The report concludes that while Europe must advance with its Capital Markets Union, the private sector will not be able to bear the lion's share of financing investment without public sector support. The report further stresses that raising productivity is fundamental to increasing fiscal space and providing public sector support for investment.

After the crises of 2008 to 2012, unemployment steadily fell across Europe, helping to reduce inequality and maintain social welfare. However, Europe faces a possible trade-off in decarbonisation, as increasing reliance on China may offer the cheapest and most efficient route, but also represents a threat to productive clean tech and automotive industries.

By 2040, the workforce is projected to shrink by close to 2 million workers each year. Decarbonisation must happen for the sake of our planet, but for it also to become a source of growth for Europe, a joint plan spanning industries is needed.

The report identifies the root causes of the EU's weakening position in key strategic sectors and presents a series of proposals to address them. It is a call to action for Europe to refocus its efforts, coordinate where it matters, and take bold steps towards a more prosperous and sustainable future.