By Renato Sabbadini, 10th December 2024
Mario Draghi, the former BCE President and former (unelected) Prime Minister of Italy, wrote a report commissioned by the European Commission summing up Europe's ongoing economic challenges, particularly its slowing growth, and proposing strategies to boost productivity and competitiveness. The report will contribute to the programme of the newly ratified collège of European Commissioners lead by Ursula von der Leyen in her second term as President of the European Commission (2024-2029).
The report identifies three main challenges, namely:
- Slowing Growth and Declining Living Standards: Since 2000, Europe has seen slower GDP growth compared to the US, while the EU’s real disposable income has increased by nearly half as much as in the US. This slowdown is largely due to a productivity gap, especially in the tech sector where Europe lags behind.
- Changing Global Landscape: The global environment that once supported Europe's growth, including rising world trade and geopolitical stability, is fading. Europe has lost access to key energy suppliers like Russia, faces technological challenges, and is vulnerable to geopolitical instability.
- Rising Need for Growth: Europe's workforce is shrinking, and by 2040, the EU is projected to lose nearly 2 million workers annually. This creates a need for higher productivity growth to sustain its social model and fund necessary investments, including digitalisation, decarbonisation, and defence.
As a consequence, Draghi draws attention to three key areas for action:
a) Innovation and Technological Growth: Europe must bridge its innovation gap with the US and China, especially in emerging technologies like AI, by fostering a more dynamic industrial sector and reducing regulatory barriers to entrepreneurship.
b) Decarbonisation and Competitiveness: Europe must pursue coordinated decarbonisation policies that reduce energy costs, leverage clean tech leadership, and navigate competition from China, ensuring that green energy transformation can also drive growth.
c) Security and Reducing Dependencies: Europe's increasing reliance on external suppliers for critical raw materials and digital technologies poses risks. A strategic foreign economic policy is needed to secure supply chains and reduce vulnerabilities.
According to Draghi, in order to make progress in this areas, the EU will need to become aware of the barriers such as lack of focus, fragmented resource allocation and insufficient policy coordination, while implementing reforms to raise productivity, to streamline decision-making processes and to coordinate investment in key sectors like defence and technology, where public-private partnerships, especially in breakthrough innovations, will be crucial.
Secondary use of health data has a special mention in the report (Part A, page 28, Part B, pages 198-201), in relation to its key contribution to the development of AI in the pharmaceutical industry and, therefore, the capacity of this industry to innovate competitively. If the new Commission will share this conviction vis-à-vis the importance of the secondary use of health data – as one expects it to do... – then one can expect this topic will remain in the calls for proposals of the next incarnation of Horizon Europe, whereas other subject might experience a ‘fall of grace’, as Draghi, while recognising the value of this tool, also believes that in its current form “it is spread across too many fields and access is excessively complex and bureaucratic” (Part A, p. 25).
Time will tell if the new Commission will adopt the entirety of the measures proposed by the former President of the BCE and – most importantly – if they will be appropriate and sufficient to help the EU navigate its challenges in a changing world.
Credit: Photo by Roger Bradshaw on Unsplash
