Draghi’s Copernican Method 

The new political cycle in the EU is starting on a strong programmatic footing, with the recently presented report by Mario Draghi on “The Future of European Competitiveness”. The report may have competitiveness in its title, but it is in fact a blueprint on how to reinvent Europe’s socio-economic model in the face of unprecedented challenges.

Mario Draghi righly observes that the “foundations on which we built are now being shaken”, necessitating a turnaround in both Europe’s approach to growth, and its place in the world. It is the international context that has changed beyond recognition and Europe has no other choice but to adapt.

As a seasoned European policy maker, Mario Draghi understands better than anyone the context in which he operates. Already at the outset, he says that various strategies have come and gone but the trend of suboptimal growth has persisted. The answer he proposes is a meritocratic revolution, a turnaround by the stealth of reason. He stresses he does not aim to list aspirational goals but put forward implementable proposals which could make a tangible difference. By this, he aims to “stop the Sun, to move the Earth”.

By proposing a detailed set of policy solutions, he is first of all demonstrating how interconnected the socio-economic reality has become. There is no answer to industrial policy without addressing energy prices, while the latter cannot be addressed without solving the trilemma of sustainability, affordability and security. This means that the anwer to Europe’s growth challenge has to be systemic: policy in one field needs to take good account of what is done elsewhere. Imagine a giant dashboard sitting on the desk of President von der Leyen, which shows all implications of the Commission’s action.

Mario Draghi is also clear about the circumstances which are not getting better, not only internationally but also in terms of demography. Europe is entering the first period in which growth “will not be supported by rising populations”. Here, he echos Paul Krugman who famously said that “productivity isnt’t everything, but in the long-run, it is almost everything”. If there is one area that stands out, Europe’s underperformance in the tech sector is identified as the main reason for the continent’s inferior productivity trend vis-à-vis the United States.

The three key areas for action – closing the innovation gap, a joint plan for decarbonisation and competitiveness, and increasing security and reducing dependencies – can be described as one big reality check on the previous EU agendas. This is also the strength of the Draghi approach. He firmly leaves illusions behind and focuses on what is existential, as he says.

To his credit, he starts with an analysis of Europe’s shortcomings, starting from lack of focus and not sufficiently joined-up policy actions. He also describes what could be called as “planctonisation” of Europe’s spending practices: there is an instrument for almost everything but usually not meaningful enough to reach the desired scale. Finally, he rightly complains about the lack of coordination “where it matters”, especially in industrial policy.

The jury is out whether the power of reason will be enough to turn things around in the 2024-2029 cycle. There is no silverbullet solution in Mario Draghi’s vision although the massive scaling up of investment comes close. As he says, investment needs to increase to levels last seen in the 1960s and 1970s to finance the digital and green transition. We are back to productivity here: the more the EU can reform, the more fiscal space to invest there will be. However, the EU cannot afford to wait. “To maximise productivity, some joint funding for investment in key European public goods, such as breakthrough innovation, will be necessary”.

Mario Draghi’s report is the EU’s new Policy Bible with a wealth of wisdom and concrete solutions on “what” to do and “why”. The “how” question is now in the hands of the new leadership. The bar has been raised high.