On 9 September, Mario Draghi unveiled his long-anticipated report ‘The Future of European Competitiveness – A Competitive Strategy for Europe’. Originally expected in June, the 400-page study provides a comprehensive assessment of the state of the EU economy.

Draghi’s analysis presents a stark outlook, noting a steady decline in productivity over the last 20 years. He warns that the EU is falling behind global competitors, particularly the United States and China, due to its failure to fully embrace innovation and match rivals in areas like technology and industry.

To address these challenges, Draghi calls for decisive action. He recommends refocusing efforts on innovation, decarbonisation, and industrial security, backed by an annual investment of €800 Billion – 5% of the EU’s GDP – in sectors such as deep technology, defence, and critical minerals. He also stresses the importance of reducing over-reliance on global supply chains and adopting a pragmatic trade policy.

While most political groups and industry leaders have welcomed his proposals, some stakeholders remain sceptical, citing a disproportionate focus on competitiveness. The report’s long-term impact, however, will only become clear over the course of the next EU Commission mandate.

An instruction manual to fix the EU

In his report, Draghi identifies several priority areas that he considers are key to restoring the EU’s competitiveness:

1. Innovation: Draghi argues that Europe lags in productivity due to slow digital adoption and low innovation. He calls for a stronger innovation ecosystem, better commercialisation, and more investment in AI and quantum computing.
2. Decarbonisation: Draghi states that high energy prices, worsened by the loss of Russian gas, threaten competitiveness. The report urges accelerated decarbonisation and investments in clean energy infrastructure.
3. Geopolitical challenges: the report highlights the need to reduce reliance on external resources. Draghi believes Europe must strengthen defence and invest in clean tech and critical minerals.
4. Protecting Europe’s manufacturing capacities: a new EU industrial strategy should balance competition and autonomy, integrate markets, streamline regulation, and enhance coordination across EU states.
5. Social inclusion: Draghi highlights the importance of sharing growth benefits, with a focus on upskilling workers for the green and digital transitions.

Beyond this general assessment, the report dives deep into ten sectoral policies: energy, critical raw materials, digitalisation & advanced technologies, high-speed/capacity broadband networks, computing & AI, semiconductors, energy-intensive industries, clean technologies, automotive, defence, space, pharma and transport. For each, Draghi offers an assessment of strengths, weaknesses, threats and opportunities. He also formulates specific recommendations such as facilitating telecoms mergers by assessing deals on an EU level or reviewing Fit for 55 legislation such as the 2035 Internal Combustion Engine (ICE) ban.

The former Italian Prime Minister also shares his perspective and advice on how to tackle several horizontal issues:

• To accelerate innovation, Europe must boost R&I to sustain competitiveness, focusing on emerging technologies and addressing demographic challenges.
• To close the skills gap, education systems need to adapt, with an emphasis on digital, green, and foundational skills. Lifelong learning is seen as crucial to meet the needs of a changing labour market. Manufacturing workers will need to acquire advanced skills to operate the technologies used today.
• Public and private investment will be key to support the twin transitions; completing the Capital Markets Union is essential to unlock investment.
• Competition policy should evolve to address challenges from digital markets and global competitors, promoting both innovation and business scale.
• EU governance needs to be further simplified to reduce regulatory burdens and enhance competitiveness.

The report also includes some bold suggestions, including moving towards regular joint borrowing from Member States to fund strategic investments, revamping EU competition rules, extending qualified majority voting to more areas, as well as prioritising trade agreements and direct investment with resource-rich countries.

What’s next?

Draghi’s report stands as a significant testament to one of Europe’s most renowned technocrats. While non-binding, it provides an unvarnished assessment of Europe’s economic landscape, offering a practical set of tools aimed at transforming the bloc in an increasingly competitive global environment.

Reactions to the report have been broadly positive. Industry organisations have welcomed proposals to reduce the regulatory burden and simplify reporting obligations stemming from the EU. The European Parliament’s main political groups, including the EPP (centre-right), Renew Europe (liberal), and the Socialist & Democrats (centre-left), have praised Draghi’s message as a “wake-up call for Europe” and urged policymakers to “rise to the challenges of our time” by implementing the proposed measures.

However, environmental NGOs such as Climate Action Network (CAN) and BirdLife Europe have criticised the report for its strong focus on industrial competitiveness, arguing that it portrays environmental protections as obstacles to economic growth.

Despite the varied responses, the report’s true impact is still uncertain. Draghi initially planned to deliver the report before the European elections and ahead of President Von der Leyen’s political guidelines for the next term. With the new Commission now in place, it remains unclear how much influence the report will have on legislative work over the next five years. Some of its more ambitious proposals – such as new joint borrowing – have already been rejected by Germany and the Netherlands, who advocate instead for unlocking private funding through greater integration of capital markets.

It will be up to Ursula von der Leyen to build consensus amongst decision-makers to ensure at least some of these recommendations materialise.