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Column by Ishaan Tharoor
But from many vantage points in Europe, the United States appears in enviable shape. The average U.S. worker makes more money and has more disposable income than the average European. U.S. companies are more productive and the U.S. tech sector is world-leading, far outpacing its relatively weak counterparts in Europe. In 2008, the collective economies of the euro zone were roughly at parity in size with that of the United States. Last year, U.S. GDP was close to double that of the euro zone countries.
The hard realities of European slump and stagnation underpinned a mammoth report released last week by Mario Draghi, a former technocratic Italian prime minister and former European Central Bank chief for much of the past decade. The 400-page document on the “future of European competitiveness” was published on the invitation of European Commission President Ursula von der Leyen and therefore is being received as a kind of declaration of continental intent. Whether its vision can be implemented is another matter.
Draghi called for a “new industrial strategy for Europe” to boost productivity, encourage innovation and close the growing gap not just with the United States but also with China, which is surging ahead in pioneering vast sectors of the new green and digital economies. That strategy would require significant economic restructuring and the summoning of hundreds of billions of euros worth of new public and private sector investment every year.
Draghi may be accustomed to rescue acts. He is widely credited with helping steer Europe out of the worst of the financial crisis in the previous decade and helping to save the flagging euro. The challenge now is arguably more complex. Europe’s urgent need for growth comes amid gloomy demographic trends, anxiety about continental security in the wake of Russia’s full-fledged invasion of Ukraine, and the imperatives to both decarbonize national economies and adjust to massive digital transformations underway, including the accelerating role of artificial intelligence.
Draghi said his report many not represent a “do or die” moment for the European Union. “But it’s: ‘Do this, or it’s a slow agony,'” he told reporters last week. “We have reached the point where, without action, we will have to either compromise our welfare, our environment or our freedom.”
The analyses and recommendations in the report are both sophisticated and dense. In a useful precis published in the Economist, Draghi outlined some of his major proposals, including the need to better encourage tech innovation, loosen up certain regulations and streamline the continent’s pricey energy markets. Across the board, Draghi calls on major changes that would see a more integrated, coordinated Europe. That may be a tough sell.
“Today’s surging nationalism will make implementing such reforms harder,” Financial Times columnist Martin Wolf noted. “Europeans are at risk of forgetting the lessons of their past: only if they act together can they hope to shape their future. The British forgot that. Can the others remember — and act?”
There’s also the thorny question of financing. The notional investment that Draghi says is required is some 800 billion euros a year, a figure that can’t be generated from the private sector alone. It would require the E.U. to raise funds collectively in ways it’s mostly resisted and to pool public debt — something that the continent’s traditionally wealthier, more frugal nations in northern Europe tend to shun.
Germany’s neoliberal finance minister, Christian Lindner, immediately balked at Draghi’s suggestion of common debt. He was not alone. “On that issue we, along with other countries, are skeptical,” Swedish Prime Minister Ulf Kristersson told Bloomberg News this week. “Every time you want to accomplish something, it cannot end with us having to take on more debt.”
Some analysts roll their eyes at such responses, especially at a time when Germany’s export-driven economy is sagging amid shifting global trends. “Many in Germany and other northern European countries still assume that an E.U. industrial strategy would amount to them having to support the rest of the bloc,” German political scientist Daniela Schwarzer wrote. “But that gets things the wrong way round: Europe has the opportunity to reassert itself in the digital sphere, master its green transition and innovate more. Looked at in that light, Germany or the Netherlands, say, would gain as much they give from a new industrial strategy.”
The leftist French economist Thomas Piketty wrote that Draghi’s report had “the immense merit of challenging the dogma of fiscal austerity,” while suggesting that there may be plenty to quibble with his vision for how the new funds get invested and what economic shifts they incentivize.
The bottom line, many experts argued, was that Draghi’s diagnosis is fundamentally right. “Europe’s innovative capacity is declining, compared with other major advanced economies, as is its business dynamism,” laid out a policy brief from the Center for European Reform. “Intensifying state-led Chinese competition, geopolitical tensions and continued reliance on imported energy mean that policy procrastination could lead to permanent stagnation, or worse.”
But the solution could be hard to concoct — and perhaps too tough to swallow.
Politico’s Carlo Martuscelli pointed to the experience of 19th-century Ottoman bureaucrats, who tried repeatedly to enact modernizing reforms to revive the fading empire. Their fitful efforts were ultimately in vain. “It’s one thing to survive a crisis. A slow boil is different,” he wrote, gesturing to Europe’s systemic challenges. “A 1 percentage point slower growth is almost imperceptible over a year, but over a decade or two it becomes an unbridgeable gap.”
