The phrase ‘Whatever it takes’ made Mario Draghi world-famous. Everybody speculating against the European currency knew from that moment onwards that, confronted with the overwhelming firepower of the European Central Bank, you could only lose money. That speech effectively ended the ‘euro crisis’.
Can he do it again?
The Draghi report requested by the European Commission on how to strengthen European competitiveness throws a big stone into the water. It will be the point of reference for both political debate and action over the current five-year legislature. Draghi makes everybody face their responsibilities. And he makes the consequences of non-action extremely clear: in the absence of decisive action, we will no longer be able to reach all our strategic targets. We will have to choose.
The essentials
The Draghi report comprises six basic truths that will inspire the legislative proposals of the European Commission in this term, even more so as it was requested by the European Commission President herself. As I read it, the Draghi report can be understood, in a nutshell, as follows:
1. Investment is the precondition for future growth. Europe is lagging behind in high-tech investment and has largely lost the new digital economy race. This can be identified as the key reason for the difference in per-capita growth between the US and the EU. Midtech– based industry—for example, the auto industry—is our current economic backbone, and it is coming under increasing competitive pressure from China.
2. Without that investment, annual productivity growth is falling behind. Europe could maintain and develop its standard of living significantly by considerably increasing female and older-age participation in the workplace. Worsening demographics make that quantitative input increase more difficult.
3. The EU has to return to the strategy of scaling through the development of its own internal market, especially in the less integrated areas of the service sector.
4. The Banking Union and Capital Markets Union are critical to high-tech investors’ efforts to scale beyond national boundaries. Given that high-tech means not only high return but also high risk, venture capital is necessary for that growth.
5. As is typical for aging societies, we have regulated for risk and not for opportunity. The regulatory burden has to be reduced.
6. Common public debt has to come in as a residual answer, dependent in volume on progress being made in the five points mentioned above. Consensus on common European debt could be achieved in the area of defence, which can be considered a European public good. A common European financing will also contribute to a more equal burden-sharing.
