EU leaders have embraced Mario Draghi’s economic diagnosis as a “wake-up call” but eluded his crucial advise to issue fresh joint debt.
The 27 leaders of the European Union have endorsed a much-anticipated “New European Competitiveness Deal” to jolt the bloc’s stagnant economy and plug the widening gap with the United States and China.
The document was sealed on Friday during an informal summit in Budapest that brought forth the fears of de-industrialisation and irreversible decline that have come to dominate the political conversation in the aftermath of back-to-back crises, a bleak landscape that could soon darken if Donald Trump makes good on his threat to slap punitive tariffs.
The solutions prescribed in the deal include pledges to deepen the single market, unlock fresh cash for SMEs and start-ups, cut red tape, promote homegrown high-tech, strike “sustainable” trade deals and spend at least 3% of GDP in R&D by the end of the decade.
These over-arching goals, which will take years to be turned into tangible policies, should not come at the expense of the Green Deal, as some right-wing forces have suggested. In their joint declaration, leaders reaffirm their commitment to achieving climate neutrality by 2050 and remove fossil fuels from the bloc’s energy mix.
“It is imperative that we urgently close the innovation and productivity gap, both with our global competitors and within the EU. We will work in unity and solidarity for the benefit of all EU citizens, businesses and member states,” they say.
The deal is the direct response to the landmark report of Mario Draghi, the former Italian prime minister, who argues the EU will face a “slow agony” if it does not take decisive, ambitious action to boost its productivity and modernise its industrial base.
There was, however, one crucial, eye-catching recommendation from Draghi that did not make it into the final document: joint debt.
The Italian has estimated the EU will need to invest up to €800 billion in additional investments per year to remain competitive on the increasingly fierce global stage. The sum is so vast, he said, that the bloc will have no choice but to issue joint debt on a large scale as it did during the COVID-19 pandemic.
Draghi, who attended Friday’s summit, said the issue of common borrowing was not necessarily “the first thing” the EU should tackle but underlined it remained “indispensable” and urged member states to stop dragging their heels.
“Over all these years, many important decisions have been postponed because we expected consensus. Consensus did not come but only lower development, lower growth, and now stagnation,” Draghi said.
“So perhaps at this point, I hope that we will find a united spirit with which we can turn for the better these great changes. [If we keep] going in random order, we are too small and we go nowhere.”
No debt, for now
Despite Draghi’s plea, leaders were unmoved. The entrenched opposition voiced by the likes of Germany and the Netherlands, who struck down Draghi’s recommendation mere hours after his report was first published in September, made it impossible to include an explicit reference to joint debt in the “new competitiveness deal.”
Instead, in the small section devoted to financing, leaders commit to making the most of the existing tools at their disposal, such as the EU’s multiannual budget, the European Investment Bank (EIB), and a long-stalled project to create a Capital Markets Union, while they explore the “development of new instruments”.
What these “new instruments” might look like is up to each reader to interpret as leaders do not provide further details to guess their significance.
Speaking to the press at the end of the summit, European Council President Charles Michel acknowledged talking about “financial solidarity” was “always difficult” for EU countries but that agreeing on contentious issues was nevertheless possible, as proven by the heated discussion that preceded the €750-billion recovery fund of 2020.
This financial solidarity, he said, must be accompanied by “structural reforms” to guarantee “more trust” among capitals and be successful.
Ursula von der Leyen, who is about to start a new five-year term as Europan Commission president and is tasked with making the “new competitiveness deal” a reality on the ground, said both public and private investments should come together.
If there are fields where it is “much better” to draw funds on an EU-wide scale, “then we can discuss how we finance that,” she said, without mentioning joint debt.
“The use of innovative tools to improve the productivity in the European Union leads to more fiscal space (for) our member states,” she said. “Therefore a gain, not a loss.”
