Draghi requires radical reform of the European Union, requiring a further 800 billion euros per 12 months

Italian Prime Minister Mario Draghi during the press conference at the Prime Minister's Multifunctional Hall on July 12, 2022 in Rome, Italy.

Massimo Di Vita | Mondadori portfolio | Getty Images

According to a report by economist and politician Mario Draghi, the European Union needs up to 800 billion euros (884 billion dollars) in additional funding per year to achieve its key competitiveness and climate goals.

The bloc's goals of strengthening its geopolitical relevance, social equality and decarbonisation are threatened by weak economic growth and productivity compared to the US and China, the report says.

The wIA controversial study led by Draghi – who was previously prime minister of Italy and president of the European Central Bank during the euro crisis – concluded that the EU's priorities must include lowering energy prices, increasing competitiveness and strengthening investment in defence.

The EU must also adapt to a world in which “dependencies become vulnerabilities and it can no longer rely on others for its security,” said the report, which points to the EU's dependence on China for key minerals and China's reliance on the EU to absorb its industrial overcapacity.

The EU's high level of trade openness will make it vulnerable if the trend towards supply chain autonomy accelerates, the report continues. Around 40 percent of European imports come from a small number of suppliers who are difficult to replace, and around half of this volume comes from countries with which the bloc has “no strategic alignment,” the report says.

“The EU must develop a genuine external economic policy that coordinates preferential trade agreements and direct investments with resource-rich countries, the building up of stocks in selected critical areas and the creation of industrial partnerships to secure supply chains for key technologies,” the report says.

The EU must ensure that dependencies do not increase and “exploit the potential of domestic resources through mining, recycling and innovations in alternative materials”.

Other objectives include the full implementation of the internal market, which covers 440 million consumers and 23 million businesses, by reducing trade conflicts.

The bloc must also ensure that its competition policy does not become an “obstacle to Europe's objectives”, particularly in the technology sector. The European coalition must also meet “massive investment needs not seen in Europe for half a century” through a mix of private financing and public support. The EU is now suffering from an “innovation deficit” that must be addressed through reforms, the report says.

As regards mobilising private capital, the report recommends transforming the European Securities and Markets Authority (ESMA) from a coordinating body of national regulators into a single regulator for all EU securities markets, which can focus on overarching objectives, similar to the US Securities and Exchange Commission (SEC).

To achieve the defence, digitalisation and decarbonisation targets, the EU's overall investment ratio as a proportion of GDP must increase by around five percentage points annually to levels last seen in the 1960s and 1970s, the study says.

Overall, according to estimates by the European Commission, at least additional investments of 750 to 800 billion euros per year would be necessary to achieve the set goals.

The report was commissioned last year by EU Commission President Ursula von der Leyen, who was elected for a second five-year term in July and will appoint new commissioners this week.

The results “will trigger a decisive debate on the future of the EU/eurozone, but one should not have too high expectations,” said Lorenzo Codogno, founder of Lorenzo Codogno Macro Advisors, in an emailed comment ahead of the report's release.

“Nothing will happen until the new Commission has reached its full working capacity and even after that, the difficult, fragmented and fragile political situation in the member states makes it difficult to get the political support necessary for action. Nevertheless, some surprises cannot be ruled out and therefore the ensuing political debate must be carefully monitored,” he said.