Will Mario Draghi’s masterplan get the momentum it needs?

Welcome back. “Do this, or it’s slow agony.” Mario Draghi didn’t mince his words earlier this week when he presented his action plan to boost European competitiveness and rescue the EU economy from painful decline. It is not just living standards that are at stake, the former Italian prime minister said, but the viability of the entire European project.

“This is an existential challenge,” he intoned. 

Draghi’s productivity strategy has been the talk of the EU economic policy world in recent days. In sum, it makes the case for a reinvigorated industrial policy with better central co-ordination and funding. 

You can read the FT’s news coverage here, our editorial here and an essay by Draghi for The Economist summing up his plan here. 

In truth, there is not a lot that is new or strikingly original in it. But the report is refreshingly blunt about the scale of the challenge facing the bloc. It combines coherent strategic objectives with scores of concrete proposals that could be implemented pretty quickly. In crisp prose, it conveys all the authority of the former president of the European Central Bank. Let me know your thoughts at [email protected].

A master plan for industrial recovery

Draghi’s analysis has delighted policy wonks. It is “surprisingly good and low-bullshit”, concluded Lucas Guttenberg, economic adviser at the Bertelsmann Stiftung. “The diagnosis is hard to argue with,” wrote Sander Tordoir, chief economist at the Centre for European Reform, in an excellent thread on X. Tordoir said the plan “channels aspects of the thinking of Jean Monnet (EU defence integration), Jacques Delors (EU single market) and Bidenomics (cleantech/economic security), But above all, Draghi’s own vision.”

Simone Tagliapietra, senior fellow at Bruegel, a think-tank in Brussels, described the report as a “master plan for a new European industrial strategy” with decarbonisation at its core:

Draghi’s plan has what any modern industrial policy should have: a combination of horizontal actions to set the right framework conditions for investment, and vertical actions to fix sector-specific issues.

The strengths of Draghi’s plan, says Tagliapietra and other analysts, are the targeted solutions he proposes. For example, Draghi argues it makes sense to allow cheap imports of Chinese solar cells, subsidised at the taxpayers’ expense, because Europe has largely retreated from this sector, whereas in wind turbines it has a strong comparative advantage, so the EU should support the sector, including through public procurement rules.

Draghi was asked to compile his report by European Commission president Ursula von der Leyen. But he is surprisingly unsparing in his criticism of EU policymaking — and, explicitly or implicitly, of the commission. The EU lacks focus on the most important strategic objectives, creates too much legislation and has heaped unnecessary red tape on European businesses, as this analysis by my colleague Alice Hancock sharply illustrates.

Fredrik Erixon of the European Centre for International Political Economy seized on the latter criticism.

This point in Draghi’s reports will annoy many — especially those that have been on the barricades for Europe going harder, faster, and deeper than other comparable economies in restrictive business and innovation policies. We’ve become the “Silicon Valley of Regulation”. Ursula von der Leyen’s first term at the helm became the “reign of red tape”. 

Basta! Economic analysis should now prevail. Europe needs better regulation.

Also striking is Draghi’s warning about the risks for Europe in pursuing decarbonisation faster than the rest of the world without a co-ordinated industrial strategy that would enable it to reap the economic benefits. For example, the EU has abandoned the principle of technological neutrality by banning the sale of new petrol and diesel cars by 2035, but without a “synchronised push to convert the supply chain” and roll out an adequate charging infrastructure.

Nein, Nein, Nein

Readers of last week’s Europe Express and our news coverage will be aware of the shockwaves created in Germany by Volkswagen’s plan to shut one or more of its German plants for the first time ever in its history. The automakers’ woes are reflective of the country’s broader competitiveness problem. Germany badly needs an industrial reboot. 

Draghi has drawn up a plan for the whole EU, but addressing Germany’s weaknesses are, implicitly at least, at the heart of it. Even for someone used to battling German economic orthodoxy, as he did at the ECB, the instant negative reaction from German politicians to his report must have been dispiriting.

The Italian economist had barely finished presenting his strategy before German finance minister Christian Lindner shot down Draghi’s suggestion that the EU might need to raise more common debt to fund breakthrough innovation and other European “public goods” like grid interconnectors. 

“Each individual EU member state must continue to bear responsibility for its own public finances,” Lindner said. “Liability is not only an important instrument in the private sector to avoid irresponsible risks, but the same also applies between nations.”

Speaking in the Bundestag later in the week, centre-right opposition leader Friedrich Merz took the same intransigent line, saying: “I will do everything I can to prevent Europe from going down that path.”

Economy minister and green politician Robert Habeck was more positive. Still, given Germany’s flatlining economy and industrial crisis we might have expected the country’s government and politicians to be more open to new thinking. 

Reducing Draghi’s report to an argument about the merits of new EU bond issuance would be a mistake. It covers so much more than that. But, as Draghi says, some public money will be needed to incentivise some of the €800bn a year that will be needed in extra investment to meet the plans objectives. An argument over money is inevitable.

As my colleague Martin Sandbu notes, Draghi also demands something of a revolution in the way the EU makes policy, with speedier decisions, streamlined lawmaking and more co-ordination to ensure that policies and authorities are all pushing in the same direction. Arancha González makes a similar argument. But any move to more decision-making by majority is also likely to be a huge bone of contention.

A Great Leap Forward?

Given the high stakes for the EU achieving a leap forward in productivity, growth should be “the consuming preoccupation of European politics both in Brussels and at the national level”, says Adam Tooze. There is little sign of that so far. In most capitals, Draghi’s report elicited little more than a shrug. This speaks volumes about the leadership void in the EU at the moment. Paris is absorbed with forming an inevitably weak government. In Berlin the question is how long a dysfunctional coalition will hold together.

Can von der Leyen give the Draghi master plan the impetus it needs? She was circumspect at its launch this week, while claiming that the Italian’s thinking had already informed her plans for a second term. Next week, von der Leyen will unveil her team of commissioners and their individual mission letters, which should give us the first proper indications. 

More on this topic

The Bruegel think-tank publishes its memos to the incoming commissioners on what they should do while in office. 

Ben’s pick of the week

Alice Hancock explains how European businesses are struggling with a mountain of EU red tape.