Mario Draghi’s recent report on the state of the European economy was meant as a wake-up call. But will Draghi’s alarm be heard or will European policymakers hit the snooze button?
The report points to three areas where Europe is economically challenged. The European Union lags behind the United States and China in innovation, especially in areas involving advanced technologies. Its competitiveness is handicapped by high energy prices. And its fragmented defense industry weakens its security.
The report then argues that deeper integration is needed to address these shortfalls. Europe needs to complete its capital markets union to foster its venture capital industry. It needs fewer regulatory roadblocks in order for new companies to scale up. It must build an integrated power grid and coordinate investments in decarbonization to bring down energy costs. And Europe must undertake more defense spending at the EU level. Here the costs of failing to collaborate are reflected in the fact that Europe produces and operates 12 battle tanks, whereas the U.S. focuses on just one.
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