Europe must substantially increase public investment in the technology and defense sectors and reduce regulation, according to a long-awaited report published Monday in response to growing anxieties about Europe’s lagging behind the United States and China.
“This is an existential challenge,” Mario Draghi, a former president of the European Central Bank, warned in the report.
“Europe’s fundamental values are prosperity, equity, freedom, peace and democracy in a sustainable environment,” he wrote. “If Europe can no longer provide them to its people — or has to trade off one against the other — it will have lost its reason for being.”
The analysis, requested by the European Commission, will serve as a guide for policymakers in Brussels, who will soon meet to determine the next five-year strategic plan for the bloc’s 27 member states.
Conditions that contributed to the continent’s prosperity have changed substantially since the coronavirus pandemic and Russia’s invasion of Ukraine. Cheap Russian gas is no longer available, and energy prices have soared. Those prices have come off their peak, but European companies still pay two to three times more for electricity than U.S. companies, the report found. The European Union has also acknowledged that it needs to significantly increase military spending.
The United States and China, the world’s two largest economies, are deeply engaged in ambitious multibillion-dollar efforts to build up their tech and green industries. Europe has experienced weaker foreign demand, especially from China, and its position in advanced technologies is declining: Only four of the world’s top 50 tech companies are European.
Several European leaders have frequently voiced concerns about the need for Europe to embrace more aggressive industrial policies. In April, President Emmanuel Macron of France said questions of whether Europe could be a powerhouse of innovation and production was essential to its future. “Our Europe is mortal,” he said. “It can die, and it all depends on our choices.”
To transform Europe’s economy, the European Union must develop a new industrial strategy that involves undertaking efforts to close the skills gap, the report found. Europe must also prioritize trade with and direct investment in resource-rich countries to build stockpiles in critical areas and establish a secure supply chain of key technologies.
But the politics are more complicated now. Right-wing politicians who have been hostile to some of the EU’s initiatives and wary of extending more power to Brussels gained seats in the European Parliament’s elections this summer. Many of Mr. Draghi’s proposals would require unanimous consent from member states, and several countries have, at one point, voiced objections to some of the policy proposals.
“Can the Draghi report put the spotlight on that slow burning crisis enough in order to shake the E.U. out of its paralysis?” asked Nicolai von Ondarza, the head of Europe research at the German Institute for International and Security Affairs.
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