The European Union would have to “scale back” its ambitions for climate reforms and greater defence spending if it failed to address a competitiveness “crisis” in its economy, a new report has said.
In an anticipated report, Mario Draghi, former head of the European Central Bank (ECB), said finding funding to invest in the green transition, in defence and in growing the economy was now an “existential challenge” for the EU.
Mr Draghi, who was president of the ECB from 2011 until 2019, warned that the bloc was continuing to fall further behind the United States and China.
His report, published on Monday, backed calls for EU countries to jointly fund big common projects in sectors such as defence and energy supply. It said the EU needed to buy into a series of internal financial reforms to reverse its current decline.
The union needed to find ways to make up €800 billion extra a year to invest in its economy and put towards various big plans, the report said. The scale of investment required to address the current challenges would need to be bigger than the reconstruction of Europe under the Marshall Plan after the second World War, it said.
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The former senior ECB official was tasked with producing the report by European Commission president Ursula von der Leyen. If the EU could not find ways to increase economic productivity it would have to choose between several competing demands, Mr Draghi said.
“We will not be able to finance our social model. We will have to scale back some, if not all, of our ambitions,” he said. Growth in Europe was slowing, which put current climate plans to transition to a decarbonised society at risk, the report said.
Speaking at a press conference in Brussels, Mr Draghi said this slowdown in growth in the EU had been “ignored” for years. “In my view we are already in a crisis,” he said.
Common EU borrowing would be one “instrument” to raise new funding, rather than an end in itself, he said.
Any move towards more common borrowing, similar to where the European Commission borrowed money to finance a huge Covid-19 pandemic recovery fund, would likely be opposed by the Netherlands, Germany, Austria and other fiscally conservative countries. “The best way to kill off any of the recommendations in the Draghi report would be to tie it to common borrowing,” one Dutch official said.
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Ms von der Leyen said she agreed that common EU funding would be needed “for certain common European projects”, but added that this could come from “new national contributions” or other sources.
The report said the EU needed to push ahead with a number of reforms of capital markets and its financial rules, which have been debated for years. At present, EU countries had different laws covering insolvency and withholding tax that remained “substantially unaligned”, it said.
The European Securities and Markets Authority, which is based in Paris, should be beefed up from an agency co-ordinating national regulators to become a “single common regulator”, similar to the US Securities and Exchange Commission, the report said.
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More should be done to make it easier for households to invest savings or pensions, the report added. Start-up companies were being hindered by “inconsistent and restrictive regulations” when they tried to grow in Europe, with many opting to relocate to the US to raise finance from venture capitalists, the report said.
Decisions on whether company mergers should be allowed to proceed under competition rules could be made quicker, Mr Draghi said. The EU’s budget also needed to be reformed, he added.
The number of areas where EU countries have a veto to block decisions, which currently includes tax and foreign policy, should be reduced, the report recommended. It suggested more decisions should instead be made by a qualified majority of member states, rather than through unanimity.
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