Mario Draghi’s report on rebooting the European economy has excited supporters of a more integrated EU. The former central banker challenges past pro-austerity dogma — yet takes it for granted that scaled-up private corporations offer Europe’s path to success.
Will Donald Trump’s reelection be the prod the European Union (EU) needs to start getting its act together? Can the twenty-seven-nation bloc articulate a common industrial policy that protects workers and average citizens from the perils of globalization — and the lure of the far right?
There are reasons to be skeptical, not least given the political troubles in the EU ’s biggest member states. In Germany, the governing coalition headed by Chancellor Olaf Scholz finally collapsed this Wednesday, the day after the US vote. The last straw was a long-developing dispute over deficit spending, which pitted Scholz against his neoliberal-hawk finance minister Christian Lindner, who opposed any talk of a moratorium on the “fiscal brake” embedded in the country’s constitution. Snap elections now expected for early 2025 seem primed to favor the conservative Christian Democrats and the further right Alternative for Germany — both zealously committed to the German dogma of austerity. Things are hardly looking much rosier over in France. Prime Minister Michel Barnier’s minority government is today embroiled in a budget fight, maneuvering a cost-cutting and investment-sparse 2025 finance package through a hung parliament.
Such instability in the EU’s two main pillars seems sure to aggravate the pessimism that has been overtaking Europe’s power elite in recent months. “My concern is not that we will suddenly find ourselves poor and subservient to others,” Mario Draghi insisted, in a September 17 speech to the EU’s parliament in Strasbourg. “We still have many strengths in Europe.” Yet for the former president of the European Central Bank (ECB), presenting the conclusions of a report on Europe’s political economy, the end game is no less gloomy: “[My concern] is that, over time, we will inexorably become less prosperous, less equal, less secure, and, as a result, less free.”
The COVID-19 pandemic, the Russian war in Ukraine, and the wavering US security commitment to Europe have spurred a debate over the EU’s weaknesses at a time of mounting geopolitical tensions. The bloc finds itself exposed to global markets and external supply chains, whether for its energy needs or the critical raw materials and technologies crucial for the green transition. Investment by European capital is falling behind its peers, with many lamenting the EU’s inability to produce digital giants to rival the blue-chip masters of Silicon Valley. On defense, the bloc’s arms suppliers can’t keep up with the Russian weapons industry; EU public buyers remain wedded to contracts from abroad, notably with US contractors.
These interlocking fears have fed a growing literature of think tank studies and business page features on the theme of European decline. In a speech last April, French president Emmanuel Macron bemoaned that “our Europe is mortal. It can die.”
Falling Behind
Now Draghi, the don of EU crisis politics, has chimed in, releasing a lengthy report in September titled The Future of European Competitiveness. As ECB president between 2011 and 2019, Draghi is often credited with “saving” the European market from near extinction during the sovereign debt crisis. Then, Cincinnatus-like — in the toadying praise of one business columnist — he took up the thankless role of Italian premier for just over a year of technocratic governance at the height of the pandemic. Known simply as the Draghi report, The Future of European Competitiveness provides an official expression of the bloc’s doubts — and a possible road map for future EU economic policy.
The document falls short of a full-fledged Green New Deal. Still, Draghi makes a coherent case for greater economic federalism, calling for common borrowing and annual investment worth €800 billion in “public goods” and green technologies.
Even those useful suggestions will struggle to overcome the fiscal conservatism of the EU’s dominant member states, notably Germany. These tensions were visible at the latest pan-European summit in Budapest on Wednesday, where EU leaders collectively digested Trump’s return. ”Proposing joint EU borrowing in the current political climate across the EU is an absolute nonstarter,” one anonymous northern European diplomat told the Financial Times. “The German, Dutch, Austrian governments will have none of it, and the Nordics aren’t keen either.” The only policy item that seemed to emerge from the Budapest summit was a pledge to lessen regulations on EU companies, with European Commission president Ursula von der Leyen promising an “omnibus” law to that effect in early 2025.
At the core of Europe’s dilemma is the fear of long-term economic decline. The bloc is struggling to respond to the state-led capitalism increasingly in vogue among its competitors, as the free-trade consensus that underpinned the first decades of the EU gives way to protectionism around the world. European capitalism, Draghi warns, has already fallen behind the United States and China, the other main poles of the global economy. Since the 2008 financial crisis, Europe’s GDP has failed to keep pace with that of the United States; if back then they were at near parity, today the US economy is nearly one-third larger than those of the EU and the United Kingdom combined.
Europe’s industrial base, meanwhile, is aging, having largely missed the boat on the wave of capital accumulation fueled by the technology boom of recent decades. “Europe is stuck in a static industrial structure,” Draghi writes. “In fact, there is no EU company with a market capitalization over EUR 100 billion that has been set up from scratch in the last fifty years, while all six US companies with a valuation above EUR 1 trillion have been created in this period.” Of the world’s fifty largest technology firms, Europe has only four, as its corporate heavyweights are retrenched in legacy sectors like luxury goods, automobiles, and heavy industry.
The dramatic drop-off of Russian oil and gas imports since Moscow’s full-scale invasion of Ukraine in February 2022 has pinned Europe into structurally higher energy prices and a dependency on the United States, which has aggressively tapped into shale gas since 2008 — one of the secret weapons behind American capital’s post-subprime-crisis expansion. Europe’s internal market rules, including prices pegged to the most expensive electricity provider in regionalized markets, have added to the disadvantage. “EU companies face electricity prices that are two to three times higher than those in the US and China,” Draghi said in his September 17 speech in Strasbourg.
The commercial flows on which the devoutly free-trade EU bet its economic future are also in jeopardy, as China and the United States double down on protections for national industries and domestic production. In fact, the European market is substantially more embedded in global commerce than those of its rival blocs. External commerce amounts to over 50 percent of Europe’s GDP, according to Draghi, compared to 37 and 27 percent for China and the United States, respectively.
Many technologies needed for Europe’s green transition are currently produced in China, fueling fears that the bloc’s nascent post-carbon industries will be drowned by imports. Yet a European reply in the form of subsidies and tariffs risks getting caught up in a tug-of-war between rival industrial interests, namely between sectors in favor of protections and exporters fearful of losing market share in the event of an EU-China trade war.
Mustering vast resources for stimulus packages and subsidies, the new interventionism in Washington and Beijing has caught the EU on the back foot. Not only do several governments reject common borrowing, such as would implicate all EU member states, but the bloc does not have the leverage afforded to the United States by the dollar’s status as global reserve currency. Initiatives like the Joe Biden administration’s Inflation Reduction Act have preoccupied EU planners since adoption, with many fearing that US spending will further cement the investment gap that already opened between US and European capital since 2008. Investment by European business stagnated between 2015 and 2022, while in the United States it grew by 30 percent.
“Chronic Underinvestment”
The narrative of Europe’s economic decline is not new. During the 2010s sovereign debt crisis, the obstacle was often said to be public sector largesse like welfare, expensive public services, and excessive labor protections weakening European firms in the age of globalized markets. Others, notably governments in the southern member states overpowered by Europe’s wealthier, fiscally conservative northern bloc, instead pointed to the crippling effects of EU budgetary rules and a lack of collective stimulus.
The Draghi report nods toward the much-needed shift from the austerity doctrine that weakened the European economy in the aftermath of the 2008 crash. “We need a common investment policy,” says Jussi Saramo, a Finnish member of the European Parliament (MEP) who caucuses with the Left group. “It’s very good that Draghi understands that markets on their own won’t do that. There’s an implicit rejection of neoliberal dogma in this report: we need public investment and public direction and can no longer leave things to the markets as the major member countries have been insisting for decades.”
Beyond market regulations, the EU shows little activism in economic policy. Hallmark EU legislation in recent years like Net-Zero Industry Act, the Digital Markets Act, and the AI Act are largely about industry norms and regulations, setting standards for business activity while assuming that corporate voluntarism will do the rest.
The EU’s budget itself amounts to only 1 percent of the bloc’s GDP, far less than its individual member states. This means that industrial policy, whether in the form of subsidies or stimulus spending, is largely left up to national governments boasting widely varying degrees of financial leeway, from heavy hitters like Germany to peripheral, debt-laden countries such as Greece. Forced upon the bloc by the COVID-19 crisis, the EU finally agreed to common borrowing in the pandemic recovery Next Generation EU package, yet that plan is set to expire in 2026. The constraints on member states’ spending, briefly lifted during the post-pandemic recovery, were reinstated last winter.
“Europe is suffering from chronic underinvestment in every sector of the economy, and that is now playing out,” Esther Lynch, general secretary of the European Trade Union Confederation, told Jacobin. “That ranges from public goods and energy and transport infrastructure to workforce training, digital systems, and new technologies.”
The EU’s climate pledge to reach net neutrality by 2050 (and cut emissions to 55 percent of 1990 levels by 2030) will require a permanent commitment to borrow and invest collectively. According to Draghi, the investment gap amounts to €750–800 billion of annual investment.
“That’s probably a conservative figure, even though it’s a big number,” says Lynch, who’s largely positive about Draghi’s calls for new investments. “What the discussion now needs to be about is, what are the financial tools that deliver that funding in a way which also addresses the social cohesion deficit?”
European Champions?
At least as rhetoric, the Draghi report can be expected to circumscribe much of the economic debate for the incoming European Commission. If the Draghi report has become something of a “bible” for EU planners, as Max von Thun, Europe director of the Open Markets Institute put it, that’s perhaps because it’s “very vulnerable to cherry-picking depending on the political forces in power. As we know, this is going to be the most right-leaning commission and EU parliament that we’ve ever seen.”
As policy, however, the core of the proposal for a common industrial policy — the call for direct investment in the green transition — may be stillborn. It risks running into the same political and economic divides that have hamstrung Europe for more than a decade.
Reappointed as European Commission president after June’s elections to the EU parliament, Ursula von der Leyen was curt in her response to Draghi, accepting only that “certain projects” could be supported through EU-level investment, namely through potential increases in transfers to the EU budget from member states. Sacked by von der Leyen in September, outgoing industrial policy commissioner Thierry Breton warned in Le Monde that Germany will have even more sway over the new Commission, safeguarding the interests of the bloc of countries opposed to collective borrowing — that is, the prerequisite for a more activist industrial policy.
Still, Lynch is optimistic that with time, the no-debt taboo holding back a common industrial policy is eroding. “There’s a growing realization that the debt brake is a counterproductive measure,” she said. “To be able to come together and have a common debt instrument would mean that those member states that are constrained by deficit rules would still have a way of being competitive.”
Yet the political obstacles are daunting. What could remain in a whittled-down industrial policy may be little more than an alibi for neomercantilist economics — empowering corporate consolidation and private finance in a proposed reset that ultimately offers little to workers and ordinary consumers.
Draghi likewise hedges with the call to facilitate private investment via a deeper integration of the bloc’s financial industry through the so-called Capital Markets Union. The idea is that Europe needs to overcome a banking, private equity, and savings infrastructure that is too segmented and not efficiently distributing financing to projects within the EU, thereby leading capital to be sucked out of the bloc and toward investments in the United States and elsewhere.
“I’m hearing everywhere that the Capital Markets Union is the answer,” says MEP Saramo. “Draghi’s idea of ‘European champions’ will certainly make capitalism stronger and encourage capital accumulation, but it has little to say for workers and small businesses. It would result in a weakening of the good things in the market economy.”
The Capital Markets Union gets to what could be the main thrust of the search for an EU industrial policy: the call for greater corporate consolidation. Though he has been careful to claim that his prescriptions are not about picking industrial “champions,” Draghi echoes the growing calls for more business concentration, built on the idea that the promise of a true European single market has not been fulfilled, leaving the bloc with markets that remain excessively national and with corporations that are unable to build up the scale to hold their own against their American and Chinese counterparts.
“What we want to see is more on the social conditionalities of new investment,” Lynch told Jacobin. “How we succeed is by having in place a stronger social infrastructure. We need to compete for talent in Europe on the basis of it being a great place to work where your family can grow up, where you can afford a home, and with schools and medical care. That’s how the EU needs to position itself in the future.”
These priorities could be drowned out in a debate that most focuses on economic scale. “One of Europe’s strengths is that is has a more balanced social model, which puts more emphasis not just on raw economic growth, but on the distribution of the economic pie,” says von Thun. “We have a more healthy backbone of small and medium-sized businesses and stronger bargaining power for workers.”
Comparing the European and the US telecommunication industry, for example, Draghi has called for a consolidation of Europe’s thirty-four leading telecom firms, pointing out that the US market is divided up between three main providers. These suggestions echo a likeminded study by fellow former Italian premier Enrico Letta, who last spring issued a report that called for a shift in internal market policy to encourage mergers in sectors ranging from telecommunication to energy and financial services. Draghi also calls for concentration in the bloc’s defense sector, pointing out that the bloc produces twelve different versions of the main battle tank, compared to the single model produced by the US defense industry.
It’s unclear what room there is for social democratic measures in an equation that may ultimately boil down to economic preparedness for war. The antidemocratic meat grinder that is EU policymaking could well redefine “competitiveness” to its lowest common denominator: Europe marshaling the industrial resources to be a big power in a world hurtling toward conflict.