The European Union needs to do a better job of defending itself in a new world dominated by war and cutthroat geopolitics, former European Central Bank chief Mario Draghi warned on Friday.
“For years, the European Union believed that its economic size, with 450 million consumers, brought with it geopolitical power and influence in international trade relations. This year will be remembered as the year in which this illusion evaporated,” Draghi said at the annual Rimini Meeting, a key event in Italian politics linked to a Catholic association.
Draghi, who last year authored a report with ideas to ramp up the bloc’s economic growth, underlined that the bloc has to adapt if it is to survive.
The crucial challenge comes from a “very brutal wake-up call from Trump.”
“We had to resign ourselves to tariffs imposed by our largest trading partner and long-standing ally, the United States,” he said of the shift in policy under the U.S. president. “We have been pushed by the same ally to increase military spending, a decision we might have had to make anyway — but in ways that probably do not reflect Europe’s interests.”
Despite its economic power, the EU plays only a “marginal” role in Trump’s peace efforts in Ukraine, was “an observer” of the massacre in Gaza and “China has made it clear that it does not consider Europe an equal partner.”
“Europe is ill-equipped in a world where geo-economics, security, and stability of supply sources, rather than efficiency, inspire international trade relations,” Draghi, also a former Italian prime minister, warned. “Our political organization must adapt to the demands of its time when they are existential.”
Returning to his familiar call to boost Europe’s competitiveness, Draghi noted that the International Monetary Fund estimates that if EU internal barriers were reduced to the level prevailing in the U.S., the bloc’s labor productivity could be about 7 percent higher after seven years.
Those internal trade barriers are also making Europe’s defense buildup less efficient. Although EU countries intend to increase their military investment by €2 trillion by 2031, “We have internal barriers that impose a 64 percent tariff on equipment and 95 percent on metals,” Draghi said.
“This leads to slower tenders, higher costs, and greater supplies from suppliers outside the European Union,” he said.
Draghi said the bloc should issue common debt to boost spending on defense, research and development, common infrastructures and disruptive technologies. That’s been resisted by so-called frugal countries.
“Only forms of common debt can support European far-reaching projects that fragmented and not sufficient national efforts would never be able to implement,” he said.
Governments should also take decisions on industrial and trade policies, cut barriers, and “they have to agree on how to fund the significant investments that are necessary in future, which account for about €1 trillion or €2 trillion a year,” he said.
Faster economic growth and political reforms to ensure a better-functioning EU are the price of entry to ensure the bloc wields geopolitical power.
“To face today’s challenges, the EU needs to shift and turn from an extra or a supporting role to the key player,” Draghi said.
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