Harry Geels: Three hidden messages of the new Draghi plan

September 17, 2024

_{This column was originally written in Dutch. This is an English translation.}

By Harry Geels

Mario Draghi's plan to make Europe more competitive, published last week, has already been much discussed. The less dicsussed political messages are even more interesting. A further question is what the status of the report is.

Last week, Mario Draghi published his long-awaited report on Europe, 'The Future of European Competitiveness', which was deemed necessary because Europe has increasingly lagged behind the US economically in recent years. More than a year ago, I gave six probable causes for this backlog. It was good to read that Draghi wants to tackle at least some of them. Let's first look at the main points of the plan, and then identify some deeper messages.

Draghi's report has a number of main points. Draghi wants to boost investments in Europe, with an amount of € 800 billion, through both public and private sectors. More than half of this must be focused on the energy transition. The public part must be financed through joint debt (avoiding the term 'eurobonds'). He also wants a reform of the EU Competition Law, so that European companies can more easily compete with their counterparts from the US and China.

Draghi also wants supply chains to become safe for Europe, which means less dependence on outside (natural) resources. He wants to abolish national vetoes as well to make the EU more decisive in crises and he wants to reallocate the priorities of the EU budget to strategic sectors, especially to energy, AI, pharma and transport (the agricultural sector is not mentioned). Finally, he wants more integration of the 'single market', to gain scale and become more competitive.

Three messages

Whether we make a short or a long summary of Draghi's plan, it is more interesting to see what (political) messages lie behind it. Roughly speaking, there are three. Firstly, Draghi wants to join the global 'rat race' of indebtedness (partly in Eurobonds). This can be defended with 'the US and China do it too', but this ultimately has negative consequences, such as upward pressure on inflation, passing on burdens to future generations, further financialization of the economy and more unstable financial markets.

The second, more hidden message is that Draghi is pushing for 'European Champions', on the one hand, by referring to the fact that the US has relatively many more mega companies, and on the other hand, by claiming that 'big caps' are more likely to embrace new technologies. An economy that is increasingly dominated by larger companies also has consequences, especially if there is an interdependence between those companies and the government, also known as 'corporatocracy', whereby the power position of smaller companies and consumers becomes smaller.

The third message is that, when it comes to our backlog, Draghi does not say a word about the flaws in the current euro, namely the 'one size does not fit all': one currency and one official interest rate do not work when countries differ economically. In fact, they will only diverge more. Draghi is now making a leap forward. He also wants to de facto perfect the eurozone, including by pushing for Eurobonds and further integration of Europe. His report reads like 'Whatever it takes to save the euro, part II.'

Good points

The report also contains a number of sensible analyses. One of the issues that is rightly pointed out concerns the relatively high energy costs, which puts European companies at a great disadvantage compared to those from the US and China. Furthermore, Draghi insists on strengthening the capital markets (in particular access to venture capital and private equity must be much better) and reducing restrictive regulations, especially those that are far too fragmentary between countries. There should also be more top universities.

What is the status of the report?

The big question is what the status of this report actually is. Will the EU Commission take action on this? And how do the EU countries themselves see all this? Or is it a report that will be taken out as a technocratic solution blueprint during the next crisis? We can also see it as a discussion document, proposing the contours of a possible (technocratic and corporatist) future. The question is also whether we won't go a long way with fewer (at the same time more uniform) rules and taxes (and a better Eurosystem).

This article contains a personal opinion from Harry Geels

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