This week, the European Commission released “The future of European competitiveness”, a report by Mario Draghi, former European Central Bank President, exploring what is holding back the bloc’s competitiveness. The report investigates how innovation, decarbonisation, security, and reduction of dependencies will potentially play an essential role in supporting European economy and society.
The report looks at how the European Union has fallen behind in the past decades, struggling to keep up with the productivity and innovative capacity of other global super-powers, namely the United States and China. The report is a stark warning to European policymakers and Member States that action is needed, and it is needed soon, to hope and restore the bloc’s competitiveness in the international context, and to ensure that the European way of life can survive the next few decades.
The report notes that Europe has faced slow growth since the early 2000s, despite various strategies to boost it and significant GDP gap has developed between the EU and the US, mainly due to slower productivity growth in Europe. In addition, the EU largely missed out on the digital revolution and lags behind in emerging technologies. The EU faces new investment needs for digitalization, decarbonization, and increased defense capacity, requiring a substantial increase in the investment share of GDP. Without increased productivity, Europe may be forced to scale back its ambitions in technology, climate responsibility, and global independence. This situation poses an existential challenge to the EU’s fundamental values and its ability to provide prosperity, equity, and other rights to its citizens.
Innovation in the spotlight
While the report rings an alarm bell for the European Union in a growingly competitive and antagonistic global context, the proposed actions identify innovation, decarbonisation, and security as the key drivers for future growth and well-being of Europeans.
- Closing the innovation gap: Europe faces a significant challenge in fostering innovation and growth. The continent lacks new disruptive companies and growth engines, with EU companies spending considerably less on research and innovation compared to their US counterparts. Europe struggles to commercialize innovations and scale up innovative companies, resulting in many European startups relocating to the US for better growth opportunities. To address this, Europe needs to unlock its innovative potential, especially in emerging technologies like AI. There is also an emphasis on providing skills and education to ensure Europeans can benefit from these new technologies.
- Joint plan for decarbonization and competitiveness: EU companies are grappling with higher energy prices compared to US competitors, highlighting the need to transfer the benefits of decarbonization to end-users. While Europe is a leader in clean technologies, it faces increasing competition from China. The challenge lies in balancing decarbonization goals with maintaining industrial competitiveness, requiring a coordinated approach to energy policy and industrial strategy.
- Increasing security and reducing dependencies: Rising geopolitical risks pose a threat to growth and freedom in Europe. The continent is heavily dependent on external suppliers for critical raw materials and digital technology, making it vulnerable to global supply chain disruptions. To address this, there is a need for a genuine EU “foreign economic policy” to retain freedom and reduce vulnerabilities. This includes coordinating trade agreements, building strategic stockpiles, and creating industrial partnerships to enhance Europe’s resilience and autonomy in critical sectors.
Short-term recommendation: boosting EU R&I Framework Programme
One of the report’s key short-term recommendations is to design a simpler and more impactful EU R&I Framework Programme. This involves:
- Refocusing the next Framework Programme (FP10) on selected priorities (new ‘EU Competitiveness Priorities’)
- Increasing the budget to EUR 200 billion
This substantial increase in R&I funding is seen as crucial for closing the innovation gap and boosting European competitiveness on the global stage.
