The long awaited "Draghi Report" on Europe's competitiveness has finally been released today, September 9th, and it shows how Europe has been in a trajectory of slow growth since the turn of the century, loosing ground to many of its competitors such as the US, China and South West Asia.

"We have reached the point where, without action, we will have to either compromise our welfare, our environment or our freedom," Draghi said at the report's launch.

The report starts by presenting several statistics showing how the EU has been procrastinating in almost every sector, but at the same time, it provides recommendations on how to finance and coordinate Europe's policies to avoid being left behind on the global stage.

1. Since 2019, the EU has enacted 4x more regulation than the US

As of 2019, the EU has passed around 13,000 pieces of legislation, while the US has passed 3,000 and 2,000 resolutions, Draghi pointed out at the press conference: "That [fact] makes you think, can we do a little less and can we be a little more focused?"

2. Since 2008, 30% of EU Unicorns have left Europe

Unicorns are considered startup companies valued at more than $1bn, because they could not scale up on the continent. The report also shows that in the the last five years, no EU company worth more than €100bn has been created from scratch.

With the world on the brink of an AI revolution, "Europe cannot afford to remain stuck in the "middle technologies and industries" of the last century.

Europe must urgently refocus its collective efforts to close the innovation gap with the US and China, as "the problem is not that Europe lacks ideas or ambition (...) but that innovation is blocked at the next stage: we are failing to translate innovation into commercialisation," said Draghi.

3. EU is losing ground in critical sectors

Europe is lagging in 7 out of 8 critical technologies such as health, defense, energy (which impacts citizens’ well-being), prosperity, and security, and the gap is widening fast. If this trend continues, Europe risks missing out on well-paid, tech-driven jobs, not only in tech but in every digitalizing sector (health, transport, finance, energy, and defense).

"The problem is not that Europe lacks ideas or ambition (...) but that innovation is blocked at the next stage: we are failing to translate innovation into commercialisation", says Draghi.

4. China's competition poses a "threat" to the bloc's clean-tech and automotive industries

Although increased reliance on China could offer a faster and cheaper way to meet Europe's decarbonisation goals, the report notes that China competition also poses a serious "threat" to the bloc's clean-tech and automotive industries.

China has become a recurring theme in Draghi’s analysis, potentially indicating a shift in tone towards Beijing. In recent years, the EU has viewed China as a partner for cooperation, an economic competitor, and a systemic rival—and now also as a “threat.”

5. Europe's dependancy on suppliers for critical raw materials and digital technology

Europe is dependent on a handful of suppliers for critical raw materials and digital technology. In case of chips, 75-90% of the world's wafer manufacturing capacity is located in Asia.

These dependencies are often two-way — China also depends on the EU to absorb its industrial overcapacity. However, other major economies like the U.S. are actively working to reduce their reliance. The problem being that if the EU fails to take action, it risks becoming vulnerable to coercion.

6. Lack of a coordinated Industry strategy

Draghi repeatedly refers that Europe has not been able to coordinate a consistent industrial strategy.

"Industrial strategies today – as seen in the US and China – combine multiple policies," including tax, trade and foreign policy, he said. "Owing to its slow and disaggregated policymaking process, the EU is less able to produce such a response."

On case is the car manufacturing industry, where "a comprehensive approach is needed covering all stages" of car production, from research and mining to data, manufacturing and recycling, Draghi says.

Path to the Future

Acording to the Draghi's report, Europe needs to mobilise at least €750bn to €800bn a year to keep pace with competitors such as the US and China. Only with this additional annual investment will Europe achieve its key targets for competitiveness and climate. The study emphasizes that the EU's ambitions for greater geopolitical relevance, social equality, and decarbonization are being undermined by slower economic growth and productivity compared to the U.S. and China.

The report stresses that "Delivering this increase would require the EU’s investment share to jump from around 22% of GDP today to around 27%, reversing a multi-decade decline across most large EU economies”, and that would need both common funding as well as private investment.

"The EU should continue -building on the model of the Next Generation (EU NGEU) funds- to issue common debt instruments, which would be used to finance joint investment projects that will increase the EU's competitiveness and security," Draghi stressed.