Europe's wake-up call to avoid 'slow agony' of decline

BRUSSELS

Europe must make radical reforms and ramp up investment to catch up with the United States or face a painful decline: that is the message of a report by former European Central Bank chief Mario Draghi that EU leaders debated on Nov. 8.

Draghi identified the smorgasbord of challenges that the European Union faces: sluggish economic growth, a slowdown in productivity, low innovation and rising dependencies on other countries for critical raw materials, including China.

Of particular concern for Draghi in his 400-page report published in September is the widening gap between the United States and Europe in terms of economic output, innovation and more.

The Italian ex-premier called for "a new industrial strategy for Europe," with extra investment of up to 800 billion euros ($863 billion) a year and drastic policy changes.

For Draghi, his report is the antidote to avoid a "slow agony" of decline for Europe.

Draghi warns Europe the world is entering a new era of trade policy to which the bloc is "already adapting" but he warned against "the pitfalls of protectionism."

That warning came even before Donald Trump won back the White House.

The EU has new tools to tackle thorny trade issues, heeding the lessons of Trump's first term that began in 2017 and Draghi urges Brussels to take a cautious "case-by-case" approach and deploy "defensive trade measures" to create a level playing field and secure critical supply chains.

One word which frequently pops up in the report is innovation, with Draghi especially pushing for Europe to close "the innovation gap" with the United States and China.

But innovation in the tech sector requires a lot of money.

Draghi's answer? Europe should look at mergers between companies in a different way and "assess how the proposed concentration will affect future innovation potential."

But in return, companies merging together must commit to investment that the EU would monitor to "prevent improper uses" of the "innovation defense."

This investment focus extends to the telecoms sector. Draghi recommends "facilitating" the merger of operators at the European level to bolster network investment.

Europe's financing needs are "massive" to fulfil the report's objectives, Draghi said.

There would need to be an extra annual investment of 750-800 billion euros to finance the EU's green and digital transition as well as its greater defense needs.

And he put the onus on both the public and private sectors to finance the investment.

"The private sector will not be able to bear the lion's share of financing investment without public sector support," the report said.

Draghi raised the idea of joint borrowing, which is backed by France. But other states, including Germany, vehemently oppose common debt, concerned that it would force them to contribute disproportionately more than other countries.