How the Draghi Report Can Strengthen the Economy
Events
26.09.2024
ZEW experts discuss Draghi’s diagnoses and recommendations for the EU
![[Translate to English:] The panellists of the ZEW webinar can be seen on the screen of a laptop](/fileadmin/_processed_/9/6/csm_BegruessungAWH_DraghiWebinar_bf989da3e3.jpg "Digital ZEW panel discussion")
The European economy is facing major challenges. The report presented by Mario Draghi at the beginning of September analyses the current economic situation and points out urgent areas for action. In it, the former ECB President warns of an ‘existential challenge’ for the European economy. Draghi has over 170 recommendations for Europe as a business location, including investment of up to 800 billion euros per year to increase the EU's competitiveness against the USA and China.
The complete recording of our webinar on YouTube
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During a digital panel discussion at ZEW Mannheim, four researchers scrutinised the report from their respective specialist perspectives. They assessed which aspects of the report could be implemented and which could be improved upon. The discussion posed the following questions: Is Draghi's analysis accurate and are his recommendations for action a step in the right direction? The focus was particularly on the topics of security, innovation, decarbonisation, industrial policy and fiscal policy.
The entire panel discussion is available as a video here.
More security and fewer dependencies
ZEW President Achim Wambach opened the event and emphasised that Draghi's report was an accurate and sober description of the current situation. The fact that Draghi calls for spending and coordination for security is a good thing, Wambach said. These endeavours provided the EU with a clear benefit. Security is also important for supply chains. They must be as independent as possible from external disruptions, that is, they must be resilient. However, while Draghi focused more on finished products at the end of the supply chain, Wambach recommended starting at the beginning of the supply chain, as disruptions at this point will affect everything that comes after. Wambach also emphasised that security is not just an economic issue: for example, (electric) cars could be equipped with a variety of sensors and cameras that transmit security-relevant data to other locations. Therefore, the EU still has major issues to grapple with on the horizon.
Closing the innovation gap with China and the USA
Irene Bertschek, Head of ZEW’s “Digital Economy” Research Unit, shed light on the innovation policy recommendations mentioned in the report. She agreed with Draghi that the existing innovation gap between the EU and the USA is largely due to Europe's weak position in digital technology. In order to keep up with rapid developments in the field of artificial intelligence, it is important that the EU invests and cooperates. It is important to ensure access to digital technologies without one-sided dependencies and to foster the expertise to apply the technologies and develop them further. Both improving access to data and implementing the AI Regulation in coherence with other regulations such as the GDPR without letting bureaucracy get in the way are equally crucial for the promotion of research and innovation.
Decarbonisation and competitiveness go hand in hand
Sebastian Rausch, Head of ZEW’s “Environmental and Climate Economics” Research Unit, highlighted decarbonisation as a growth opportunity to increase long-term competitiveness in Europe. According to Rausch, the EU is an overall innovation leader in clean technologies but has problems applying these technologies to larger scales. Draghi's report, he said, proposes prudent approaches to reducing energy costs and accelerating decarbonisation. It focuses on an approach coordinated within the EU to support energy-intensive industries and clean technologies, emphasising the need for harmonised support instruments and financing mechanisms to ensure a level playing field in the internal market. To Rausch, however, the report falls short when it comes to the pressing issues of market-based, EU-wide coordination of investments in renewable energies and the design of European carbon pricing after 2030.
The need for innovation funding
Friedrich Heinemann, head of ZEW’s “Corporate Taxation and Public Finance” Research Unit, discussed the fiscal policy aspects of the report. He praised that Draghi is in favour of restructuring the existing EU budget. However, Heinemann questioned how effectively the money would ultimately be utilised. In recent decades, the investment programmes of EU cohesion policy had often only achieved limited success. The report does not develop any promising ideas for a more success-oriented management of the European budget. With regard to the idea of the EU incurring new debts to finance Draghi's ideas, Heinemann referred to the disappointingly unfavourable financing conditions of the EU as a bond issuer. This makes new debt unattractive and very expensive for the European budget.
Wake-up call for a forward-looking approach
As the discussion showed, although the report is an accurate, sober description of the current situation, some of its recommendations are not insightful enough or do not take important tools into account. The discussion made it clear that Europe's economic future depends on decisive and well thought-out measures. The Draghi report provides important impetus, but its implementation requires close cooperation between politics, business and science. One thing is clear: Europe must act to secure its competitiveness.
