Draghi calls for new 'Marshall Plan' to revive European economy

In an article published in a weekly magazine, Mario Draghi emphasises that Europe "needs investment on a par with the Marshall Plan and a lot more innovation" because its economic growth has been slowing for decades. An ageing population must find ways to increase productivity so the economy can continue growing.

On Monday, the former ECB chief and former Italian Prime Minister presented a 400-page report commissioned by the European Commission, which seeks ways to break the economic stagnation in the EU, reminds the "Economist."

The former ECB chief, whose energetic policy most likely saved the eurozone during the financial crisis, warned in an interview with journalists that the European economy faces a "slow agony."

In the text published in the "Economist," Draghi emphasises that the gap between the EU and US economies is widening, largely due to the much more dynamic development of the advanced technology sector in America. Meanwhile, in this area, which will be the driving force for economic growth, the European Union is not achieving great success.

According to Draghi, European companies specialise in "mature" sectors that will not bring breakthroughs while innovation is needed. Europeans do not lack ideas, but their commercialisation falters; there is a lack of investors and scale effect, and a tangle of regulations is another problem.

The EU must change course. A weak tech sector will not only rob it of the growth opportunities of the coming AI revolution. It will also hinder innovation in a wide range of adjacent sectors—such as pharmaceuticals, cars and defence—where integrating AI into operations will be critical for the EU to remain competitive - Draghi believes.

The former Italian Prime Minister proposes that EU countries jointly finance investments and subsidies to develop breakthrough technologies, launch them on the market, and leverage the pan-European scale effect.

- While the EU should aim to match America in innovation, it should exceed it in training and adult learning - believes Draghi, adding that this requires further integration of the European market and decision-making processes

Moreover, this is also necessary for Europe's security. The Union must combine its capabilities and financial expenditures to build defence-industrial potential. "The EU’s defence industry is too fragmented and suffers from a lack of standardisation and interoperability of equipment" - emphasises the politician.

Without joint financing in areas such as defence procurement or cross-border energy networks, key aspects of collective security will remain neglected. To succeed, preserve prosperity, and freedom, Europe "will have to take a new stance towards co-operation: in removing obstacles, harmonising rules and laws, and co-ordinating policies" - summarises Draghi.

The report prepared under his auspices by experts states that the EU additionally needs up to £675 billion annually to ensure economic growth. According to the authors of the document, this can be obtained, among other ways, by further debt issuance like the recovery fund.

The "Economist" assesses in a commentary that many solutions proposed by Draghi should be implemented, such as deeper integration of European markets, so that start-ups can benefit from the scale effect in terms of both customers and financial investors.

Draghi also wants—emphasises the "Economist"—for the EU to make joint decisions on public investments to simplify the regulatory maze that engulfs European companies.

However, the former ECB chief has treated too favourably the appeals of economists who mainly rely on developed exports and demand subsidies for "strategic" sectors like car manufacturing and tariffs on imports from China. The British weekly also comments that it remains unclear to what extent Draghi would be willing to support interventionist solutions, which many politicians demand.

In its view, Draghi's report does not pay enough attention to the fact that the success of European companies depends on the market, not governments; it is also uncertain whether state subsidies bring accumulated benefits to the economy or support only its favoured sectors.

The "Economist" notes that well-utilised subsidisation of research and development could be effective at the continental level. However, it cautions that Northern European countries have little appetite for joint EU investments.

The weekly, known for its commitment to free-market principles, writes that there is a risk that politicians will use Draghi's report as an "intellectual cover," allowing European governments to pursue increasingly interventionist policies, suggesting that then Europe's problems are likely to worsen.

It is important, however, that Draghi heavily focuses on security issues, where interventionism is much more useful than as a tool for driving economic growth - claims the "Economist."