Draghi calls for Marshall Plan to save Europe's struggling economy

In a weekly magazine article, Draghi highlights that Europe "needs investment on a par with the Marshall Plan and a lot more innovation" because its economic growth has been slowing for decades. With an aging population, it must find ways to increase productivity to continue growing.

On Monday, the former ECB chief and former Italian Prime Minister presented a 400-page report commissioned by the European Commission, which is seeking ways to break the economic stagnation in the EU, reminds the "Economist."

The former ECB chief, whose energetic policy most likely saved the eurozone during the financial crisis, warned in an interview that the European economy faces a "slow agony."

In the text published in the "Economist," Draghi emphasizes that the gap between the EU and US economies is widening, which is largely due to the much more dynamic development of the advanced technology sector in America. Meanwhile, in this vital area, the European Union is not achieving significant success.

According to Draghi, European companies specialize in "mature" sectors that will not bring breakthroughs while innovation is needed. Europeans do not lack ideas, but their commercialization falters. There is a lack of investors and scale effect, and a tangle of regulations is another problem.

The EU must change course. A weak tech sector will not only rob it of the growth opportunities of the coming AI revolution. It will also hinder innovation in a wide range of adjacent sectors—such as pharmaceuticals, cars and defence—where integrating AI into operations will be critical for the EU to remain competitive - explains Draghi.

The former Italian Prime Minister proposes joint financing of investments and subsidies by EU countries to develop breakthrough technologies, launch them on the market, and leverage the pan-European scale effect.

"While the EU should aim to match America in innovation, it should exceed it in training and adult learning. Important decisions lie ahead about how to finance Europe’s investment needs. Integrating its capital markets will be crucial," believes Draghi.

Furthermore, this is also necessary for Europe's security. The Union must combine its capabilities and financial expenditures to build defense-industrial potential.

The EU’s defence industry is too fragmented and suffers from a lack of standardization and interoperability of equipment," emphasizes the politician.

Without joint financing in areas such as defense procurement or cross-border energy networks, key aspects of collective security will remain neglected. To succeed, preserve prosperity, and maintain freedom, Europe "will have to take a new stance towards co-operation: in removing obstacles, harmonising rules and laws, and co-ordinating policies" - summarizes Draghi.

The report prepared under his leadership by experts states that the EU additionally needs up to $886 billion annually to ensure economic growth. According to the document's authors, this can be obtained by further debt issuance, similar to the recovery fund.

The "Economist" assesses in a commentary that many solutions proposed by Draghi should be implemented, such as deeper integration of European markets so that start-ups can benefit from the scale effect both in terms of customers and financial investors.

Draghi also wants—emphasizes the "Economist—for the EU to make joint decisions on public investments to "simplify the tangle of regulations that entangle European companies."

However, the former ECB chief has treated too favorably the appeals of economists who mainly rely on developed exports and demand subsidies for "strategic" sectors like car manufacturing and tariffs on imports from China. The British weekly also comments that it remains unclear to what extent Draghi would be willing to support interventionist solutions, which many politicians demand.

In its view, Draghi's report does not pay enough attention to the fact that the success of European companies depends on the market, not governments; it is also uncertain whether state subsidies bring accumulated benefits to the economy or merely support specific favored sectors.

The "Economist" notes that well-utilized subsidization of research and development could be effective at the continental level. However, it cautions that Northern European countries have little appetite for joint EU investments.

The weekly, known for its commitment to free-market principles, writes that there is a risk that politicians will use Draghi's report as an "intellectual cover," allowing European governments to pursue increasingly interventionist policies. Then Europe's problems are likely to worsen, as evaluates the magazine.

The Economist claims that Draghi should focus heavily on security issues, where interventionism is much more useful than as a tool for driving economic growth.