by Let’s face it: The report on Europe’s competitiveness and future submitted by Mario Draghi to the European Commission is heading in the right direction. For the former ECB president, Europe needs to make €800 billion of additional investments per year in the future – the equivalent of 5% of the European Union’s (EU) GDP – or around three times the Marshall Plan (between 1% and 2% of GDP in annual investments in the post-war period). This would enable the continent to return to the investment levels of the 1960s and 1970s. To achieve this, the report proposes recourse to EU borrowing, as was done with the €750 billion recovery plan adopted in 2020 to cope with Covid-19. Except that the aim now is to raise such sums each year for sustained investment in the future (particularly in
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Let’s face it: The report on Europe’s competitiveness and future submitted by Mario Draghi to the European Commission is heading in the right direction. For the former ECB president, Europe needs to make €800 billion of additional investments per year in the future – the equivalent of 5% of the European Union’s (EU) GDP – or around three times the Marshall Plan (between 1% and 2% of GDP in annual investments in the post-war period). This would enable the continent to return to the investment levels of the 1960s and 1970s. To achieve this, the report proposes recourse to EU borrowing, as was done with the €750 billion recovery plan adopted in 2020 to cope with Covid-19. Except that the aim now is to raise such sums each year for sustained investment in the future (particularly in research and new technologies), and not to fund an exceptional response to a pandemic. If Europe proves incapable of making these investments, then the continent will enter a « slow agony » in the face of the US and China, the report warns.
One may disagree with Draghi on several key points, not least of which is the precise composition of the investment in question. Nevertheless, this report has the immense merit of challenging the dogma of fiscal austerity.
According to some, in Germany but also in France, European countries should repent for their past deficits and enter a long phase of primary surpluses in their public accounts, in other words, a phase in which taxpayers should pay much more in taxes than they receive in expenditure, to urgently repay the interest on the debt and the principal.
In reality, this austerity dogma is based on economic nonsense. Firstly, because real interest rates (net of inflation) have fallen to historically extremely low levels in Europe and the US over the last 20 years: Less than 1% or 2%, and sometimes even negative levels. This reflects a situation where there is a huge windfall of little-used or misused savings in Europe and worldwide, ready to pour into Western financial systems with virtually no yield. In such a situation, it is the role of public authorities to mobilize these sums and invest them in training, healthcare, research and new technologies, major energy and transport infrastructures, thermal renovation of buildings, and so on.
As for the level of public debt, it is indeed very high, but not unprecedented. It is close to that observed in France in 1789 (around one year’s national income), and significantly lower than that seen in the UK after the Napoleonic Wars and in the 19th century (two years’ national income) and in all Western countries after the two World Wars (between two and three years).
Yet history shows that such high levels of debt cannot be dealt with using ordinary methods. Exceptional measures are needed, such as levies on the highest private assets, like those successfully applied in Germany and Japan in the post-war period. When real interest rates rise again, we’ll have to do the same, by taxing multi-millionaires and billionaires. Some will argue that this is impossible, but in reality it’s a simple book-entry transfer. The same cannot be said of global warming, public health or training challenges, which cannot be solved with the stroke of a pen.
If we now examine the details of the Draghi report’s proposals, there is obviously much to criticize, and that’s a good thing. Once the principle that Europe needs to invest massively has been accepted, it’s healthy for different visions to be expressed as to the type of development model and welfare indicators we want to promote. In this case, Draghi’s approach is technophile, mercantile and consumerist. He emphasizes large-scale public subsidies for private investment in digital technology, artificial intelligence and the environment. However, there is every reason to believe that Europe should seize the opportunity to develop other modes of governance and avoid, once again, giving full power to large private capitalist groups to manage our data, our energy sources or our transport networks.
Draghi also considers public investment, for example in research and higher education, but in an overly elitist and restrictive way. He proposes that the European Research Council should finance universities directly (and not just individual research projects), which would be a very good thing. Unfortunately, the report proposes to focus solely on a few poles of excellence in major metropolises, which would be economically dangerous and politically unacceptable. Public health and hospitals are almost entirely absent from the report.
Generally speaking, for such an investment plan to be adopted, it is essential that disadvantaged territories and the most disadvantaged regions – including, for example, in Germany – benefit from massive and visible resources. If France, Germany, Italy and Spain, which together account for three-quarters of the eurozone’s population and GDP, can agree on a balanced, socially and territorially inclusive compromise, then it will be possible to move forward without waiting for unanimity, relying on a core group of countries (as envisaged in the Draghi report). This is the debate that Europe must now engage in.