A recent report has indicated that should the European Union fail to mitigate a possible crisis in economic competitiveness, its aspirations towards climate reform and elevated defence funding may have to be reduced. Former European Central Bank chief, Mario Draghi, voiced concerns in a highly awaited report stating that sourcing funds for economic growth, the green transition and defence is now a matter of survival for the EU. He highlighted that the EU consistently lags behind major economies such as the US and China.
In the report published Monday, Draghi emphasised the need for EU nations to collectively finance large scale initiatives in defence and energy sectors. It further stated that for the reversal of its current decline, the EU must accept a range of domestic financial reforms. As per the report, the EU needs to devise methods to raise an additional €800 billion annually for investing in the economy and advancing extensive plans. The mandate for investments to meet existing European challenges, the report cited, is projected to surpass the expenditure of post-World War II reconstruction under the Marshall Plan.
The report was commissioned by Ursula von der Leyen, president of the European Commission, and drafted by the ex-senior ECB officer. Draghi opined that if the EU is unable to enhance economic productivity, it will face a dilemma of prioritising several conflicting demands. He cautioned, “The impossibility to finance our social model will lead to the reduction of our ambitions.” He added that Europe’s existing decarbonisation schemes are at risk amidst slowing growth.
Addressing a press conference hosted in Brussels, Draghi remarked that the stifling growth of the EU has been overlooked for several years. “From my standpoint, we are already amidst a crisis,” he stated. He also suggested speeding up company merger decisions under competition regulations.
The former Italian Prime Minister suggested a reform in the EU’s budget, advocating to reallocate some of the existing EU funds to bolster growth and innovation. Ursula von der Leyen, in response, agreed to the necessity of common EU funding for specific pan-European projects. She proposed these funds could potentially stem from fresh national contributions or alternative sources.
The revelations indicated that the EU should hasten the execution of several capital market and financial rule reforms, which have been under discussion for a long while. The laws governing insolvency and tax withholding among EU nations currently vary widely, and reportedly lack proper alignment.
Furthermore, it was insinuated that the European Securities and Markets Authority–located in Paris–should evolve beyond supervising national regulators, moving onto becoming a single, central regulator, much like the US Securities and Exchange Commission.
Additionally, the report stressed on facilitating households to invest their savings or pensions more easily. Start-ups appear to be impeded by inconsistent and stringent regulations when striving for expansion within Europe, leading many to choose the US to solicit finance from venture capitalists, the report suggested.