Europe is looking for a new direction. The current trend needs to be reversed to achieve growth and catch up with the United States and China in the economic race. Ex-Prime Minister Enrico Letta and ex-Central Banker Mario Draghi have presented their reports on the new direction for Europe. Published on 9 September, Mario Draghi’s report provides a wealth of interesting information. In terms of informative content, the report is heavy-going to the point of exhaustion, but nevertheless of the highest standard. The report has two types of readers who differ from each other. For some, the report gives pointers to success and for others it means a path toward joint debt instruments.
Growth for European companies
For those interested in a stronger future for European business, Draghi's 300+ page report "The Future on European Competitiveness" offers a first reading experience. The report makes several important observations. First, high energy prices are a burden on industry; there is a clear shortage of talent; Europe lacks one big stock exchange authority; competition laws must allow the emergence of large European companies; and so on.
According to the report, Europe needs to make massive investments in its future. In its coverage, the Financial Times took an analytical look at the proposals to strengthen the competitiveness of companies. The investments proposed by Mr Draghi would require an investment of EUR 750–800 billion, and a corresponding amount of spending money. The newspaper highlighted the need to amend competition laws or their interpretation in order to encourage the emergence of strong European companies. As it is, even large European companies are too small to compete with the US and Chinese giants.
Investing in the future costs money and should be financed somehow. For this, the report offers another reading experience.
Joint EU debt
For those who read the report backwards, starting at the end, it offers a different reading experience. The report concludes that a new joint debt instrument (safe asset) should be created to finance these future investments. In real terms, it means common EU debt. Currently, the EU’s annual budget is about 1 per cent of the EU’s GDP. As far as the national states are concerned, this is quite a low percentage. According to the report, the EU Member States have the potential to increase joint debt.
Of course, there are two views of common debt. There are those for whom everything about the EU is too much and those who welcome more EU. On this point, Europe is divided. The frugal Nordic countries are suspicious of more EU, whereas southern Member States are in favour. The European Commission and officials often support the latter position.
Some of the newspaper headlines based their conclusions about the merits of the report on the section on joint debt. These articles failed to address the interesting points raised in the first part of the report because the collective debt discussed at the end of it was unappetizing.
Perhaps it is fair to say that the Draghi report ultimately offers two paths to the future. Readers are well advised to study Draghi's excellent analysis of Europe's competitiveness and areas in which to invest. This should be followed by a separate discussion of those measures that do not require a financial contribution and those that do.
In conclusion
Europe's future economic success is a topical and acute issue. Beliefs about sound EU policy have been redefined. A lot of assumptions are being reviewed. Europe and the EU simply have to renew themselves. To this end, the report proposes several low-cost measures. Europe needs to get down to business.
A summary of this blog has been published in the opinion section of Kauppalehti business newspaper on 26th September, 2024.
Writer is VER's CEO Timo Löyttyniemi
