Former Italian prime minister and European Central Bank chief Mario Draghi is set to issue a sweeping report on economic competitiveness.
Normally, a white paper from an Italian technocrat recommending policy changes regarding economic governance in Europe would not receive much attention on the other side of the Atlantic. But Mario Draghi is not just any European and this is not just any report.
In a few weeks, the former Italian prime minister will present a vision of how the European Union can boost its productivity and remain competitive in an “increasingly extreme” global economy. In this presentation he will present comprehensive policy tools for accelerating innovation.
“Other regions are no longer playing by the rules and are actively working out policies to strengthen our competitive position,” Draghi said in a speech to fellow Europeans recently — a preface to his report.
The EU must pursue its own industrial policy, he argued — which could mean more subsidies and more tariffs, more consolidation in some sectors to create bigger, more competitive businesses globally and better policy coordination across the bloc’s countries. Essentially, closer economic integration within the EU and slightly less outside it.
Is the US afraid of ‘Super Mario’?
Credited with saving the euro as head of the European Central Bank and then helping revive Italy’s economy as caretaker prime minister in the wake of the pandemic, “Super Mario” is an unusually respected figure in Europe and a rare leader who has a large degree managed to overcome factional politics (it has no party orientation).
The reason is that such reforms will need bureaucrats, politicians and economic actors to work together to happen. Without a push from someone like Draghi, any broad-based economic reforms could be dead from the start. He will have to convince Europe’s heads of state and government with the force of his arguments.
The person familiar with the drafting of the report said it would assess weaknesses in Europe’s competitiveness with a view to more coordination among EU member states, a trade policy that reduces geopolitical risks for the bloc and the development of defense industrial capacity, among other things. recommendations.
If Draghi’s push is successful, such policies could further shake the transatlantic relationship at a time when the US is trying to create more secure supply chains, attract investment and fight climate change.
Of course, China looms large in this debate, with Beijing ramping up subsidies on all sorts of goods (a response, perhaps, to high youth unemployment) and flooding global markets with its output. The US and EU countries last week at the G7 jointly agreed to confront China over this excess capacity. But while US policy discussions have focused centrally on the threat from China, Europe is being spurred into action not only by Beijing but also by Washington.
In his speech, Draghi mentioned China in succession and then the US, where he pointed to “large-scale industrial policy” and “protectionism”. This felt more like a rhetorical device than an attempt to equate the two.
Electoral balances
At worst, industrial policies in both the US and the EU aimed at attracting investment could work at cross purposes and make the whole effort more costly for both sides. The prospect of former President Donald Trump’s re-election to the US presidency also looms large in the European debate, including his proposal for across-the-board 10% tariffs, which could lead to more policy divergence.
But global connections won’t just disappear. At present, there is some coordination of intercontinental policies. Frustration prevailed in Europe after Congress approved a series of climate initiatives (in the oddly titled “Cut Inflation Act”) aimed at attracting clean energy investment to the US, with Europeans worried about losing market share .
The Biden administration has since worked to address their most pressing concerns, clarifying that foreign-made electric vehicles could be eligible for a tax credit provided by the IRA for commercial leased clean energy cars. But that law, along with federal spending to boost domestic semiconductor manufacturing, caught Europe’s attention.
Next year, the EU will review its rules on subsidies, which could lay the foundations for a more coordinated industrial policy.
