Draghi calls for new 'Marshall Plan' to save EU economy

Former European Central Bank President Mario Draghi warns of the "slow agony" of the European economy. He emphasizes that the gap between the EU and US economies is growing. He believes Europe "needs investment on a par with the Marshall Plan and a lot more innovation."

In a weekly article, Mario Draghi emphasizes that Europe "needs investment on a par with the Marshall Plan and a lot more innovation" because its economic growth has been slowing for decades. An aging society must find a way to increase productivity so the economy can continue to grow.

According to the Economist, the former ECB head and former Italian Prime Minister presented a 400-page report prepared at the request of the European Commission, which is looking for ways to break the economic stagnation in the EU.

The former ECB head, whose energetic policy most likely saved the euro zone during the financial crisis, warned in an interview with journalists that the European economy is facing a "slow agony".

In a text published in the Economist, Draghi emphasizes that the gap between the EU and US economies is growing, mainly due to the much more dynamic development of the advanced technology sector in America. Meanwhile, the European Union is not achieving great success in this area, which will drive economic growth.

According to Draghi, European companies specialize in "mature" sectors that will not bring breakthroughs, whereas innovation is needed. Europeans have no shortage of ideas, but their commercialization is lacking, investors are missing, and there is no scale effect, while a tangle of regulations poses another problem.

The EU must change course. A weak tech sector will not only rob it of the growth opportunities of the coming AI revolution. It will also hinder innovation in a wide range of adjacent sectors—such as pharmaceuticals, cars and defence—where integrating AI into operations will be critical for the EU to remain competitive, explains Draghi.

The former Italian Prime Minister suggests that EU countries jointly finance investments and subsidies that will allow for the development of breakthrough technologies, bringing them to market, and leveraging the pan-European scale effect.

- While the EU should aim to match America in innovation, it should exceed it in training and adult learning. Important decisions lie ahead about how to finance Europe’s investment needs. Integrating its capital markets will be crucial, believes Draghi.

Moreover, this is also necessary for Europe's security. The Union must pool its capabilities and financial resources to build defence-industrial potential. "The EU’s defence industry is too fragmented and suffers from a lack of standardization and interoperability of equipment," emphasizes the politician.

Without joint financing in areas such as defence procurement or cross-border energy networks, key aspects of collective security will remain neglected. To succeed and preserve prosperity and freedom, Europe "will have to take a new stance towards co-operation: in removing obstacles, harmonizing rules and laws, and co-ordinating policies," concludes Draghi.

The report prepared under his auspices by experts claims that the EU additionally needs up to 1.2 trillion CAD annually to ensure economic growth. According to the document's authors, these funds can be obtained, among other things, through further debt issuance similar to the recovery fund.

"Economist" comments that many of the solutions proposed by Draghi should be implemented, such as deeper integration of European markets so that startups can benefit from the scale effect both in terms of customers and financial investors.

Draghi also wants, "Economist" emphasizes, for the EU to make joint decisions regarding public investments to "simplify the tangle of regulations that entangle European companies."

However, the former ECB head has been too favourable to economists who primarily focus on developed exports and demand subsidies for "strategic" sectors such as automobile manufacturing and tariffs on imports from China. The British weekly comments that it is also unclear how much Draghi would be willing to support the interventionist solutions that many politicians demand.

In their view, Draghi's report does not sufficiently address that the success of European companies depends on the market, not governments; it is also uncertain whether state subsidies provide cumulative benefits to the economy or support only its favoured sectors.

"Economist" notes that well-used subsidies for research and development could be effective continent-wide. However, it adds that Northern European countries have little appetite for joint EU investments.

The weekly, known for its commitment to free-market principles, writes that there is a risk that politicians will use Draghi's report as an "intellectual cover" that allows European governments to pursue increasingly interventionist policies, and then Europe's problems will likely worsen.

It is important that Draghi addresses security issues to a large extent, and it is in this area that interventionism is much more useful than as a tool for driving economic growth, claims "Economist".