Mario Draghi’s report called for bold investment and common debt issuing, but instead, it is fuelling a dangerous deregulatory push across Europe.
Last autumn, the submission of Mario Draghi’s report on the “future of European competitiveness” appeared to mark a turning point—a break with decades of neoliberal policies and a renewed ambition to build the European Union’s “strategic autonomy.” Six months on, however, the report is being seized upon as a pretext for a libertarian shift, aligning Europe with the deregulatory agenda of Donald Trump’s United States and Elon Musk’s vision of unfettered capitalism. A vast movement towards social and environmental deregulation is underway. To reverse this trend, there is an urgent need to bring the issue of common debt back on the European agenda.
The report offered an unflinching assessment of the European economy’s decline relative to its American and Chinese competitors. It highlighted Europe’s struggles in nearly every crucial sector for the future—from Artificial Intelligence (AI) and digital platforms to microelectronics, electric vehicles and renewable energy. Without a major and rapid investment effort, the report warned, Europe faced a severe downgrading that would be difficult to reverse.
For those following these issues closely, the findings were unsurprising. They merely confirmed what most experts in these fields had long observed. However, by bringing together these challenges in a single, authoritative document and breaking with the EU’s usual rhetoric of cautious optimism, Draghi’s report delivered a jolt. Presented by a figure as indisputable as the former European Central Bank chief—the man credited with saving the eurozone—it commanded immediate attention and became a key reference point for European policymakers.
An Investment Gap of 800 Billion Euro Per Year
Draghi estimated that the EU needed to increase investment by approximately 800 billion Euro per year to catch up in high-tech sectors, the green transition and defence. This additional spending—equivalent to five percentage points of the EU’s GDP—would represent a historic leap. By comparison, the Marshall Plan, which helped rebuild Europe after the Second World War, accounted for just one to two percent of European GDP.
How can Europe generate such a surge in investment? The report outlines several main avenues:
First, unifying capital markets, following the recommendations in Enrico Letta’s April 2024 report, so that Europe’s abundant savings can be channelled into innovative companies—something the United States has long done more effectively. While this project makes sense, it requires significant changes in European legislation and, more fundamentally, a transformation in the culture and practices of European financial institutions. Such a shift will take time, meaning that capital market integration cannot provide an immediate response to the urgent financial needs outlined in the Draghi report.
Second, Draghi emphasises that such an investment leap, particularly in high-risk, capital-intensive sectors, cannot be achieved without public funding. “To maximise productivity, joint funding of investment in key European public goods, such as disruptive innovation, will be necessary,” Draghi argues. “At the same time, other public goods—such as defence procurement or cross-border networks—will be underfunded in the absence of joint action. If the political and institutional conditions are right, these projects will also require joint financing.”
No New Common Debt for Technological Catch-Up
Yet, on the very day Draghi’s report was submitted, European Commission President Ursula von der Leyen dismissed the idea of issuing new common debt to finance Europe’s investment push. Despite the immense financial strain imposed by Russia’s war against Ukraine, EU leaders have, since 2022, consistently rejected any repetition of the 2020 Next Generation EU plan, under which the bloc borrowed 750 billion euro on financial markets to fund pandemic recovery efforts. For the self-styled “frugal” coalition, and for the German government committed to balanced budgets, this joint borrowing was to remain a one-time exception.
Despite the scale of the financing needs identified by Draghi, von der Leyen chose not to reopen the debate. Instead, the European Commission is relying on limited additional support from the European Investment Bank and, in the longer term, the renegotiation of the EU’s multiannual financial framework for the 2028-2034 period. The hope is to restructure the budget and significantly increase funding for innovation—at the expense of other policy areas.
However, with the EU budget capped at one percent of European GDP, these ambitions face structural constraints. European budget negotiations are typically an exercise in limiting spending, not expanding it. Even if an increase were possible—say, by an improbable 50 percent—the resulting additional funding, equivalent to just 0.5 percent of GDP, would still fall well short of Draghi’s identified needs.
One alternative would be to relax state aid rules, as was done temporarily during the pandemic, allowing greater national-level support for innovation. Yet, given the fiscal constraints faced by most EU member states, the cumulative impact of such national measures would likely be insufficient. Moreover, a national approach would disproportionately benefit wealthier countries, exacerbating rather than narrowing existing disparities in innovation across the EU.
The conclusion is clear: in the absence of a willingness to issue new common debt, Europe will almost certainly fail to mobilise the scale of public investment that Draghi advocated for high-tech innovation.
The Draghi Report as a Pretext for Deregulation
This leaves one final pillar of Draghi’s recommendations: deregulation. According to the report, burdensome EU regulations are a major obstacle to high-tech innovation, and cutting red tape is essential for Europe to compete with the United States and China. It is this aspect of the Draghi report that the European Commission has seized upon, as reflected in its “Competitiveness Compass” published on 29 January and the accompanying “omnibus directive.”
There is no doubt that excessive bureaucracy stifles business and innovation. Yet, despite Draghi’s careful wording, his report has become a convenient pretext for powerful industrial, agricultural and business lobbies seeking to roll back key elements of the European Green Deal, the Digital Services Act and recent advances in corporate social responsibility.
This deregulatory push aligns with the priorities of the emerging right-wing and far-right majority in the European Parliament and the shifting balance of power within the European Council, shaped by recent elections in Austria and the Netherlands. It also resonates with the broader global mood, as evidenced by Javier Milei’s radical libertarianism in Argentina and the influence of Trump and Musk in the United States.
Deregulation Stifles Innovation
Contrary to prevailing rhetoric, social and environmental protections have historically spurred, rather than hindered, innovation. Higher regulatory standards push companies to develop cleaner technologies, automate tasks, and find alternatives to fossil fuels in industries such as chemicals and manufacturing.
If deregulation were the key to high-tech success, Bangladesh would be a global leader in start-ups. The reality is that Europe’s relative decline in innovation is not due to strict regulations, but rather to years of austerity-driven policies following the 2008 financial crisis and the eurozone debt crisis. Budgetary consolidation took precedence over public investment, leading to chronic underfunding in education, research, and innovation support. These cuts were politically convenient—offering immediate fiscal relief, while their negative consequences only materialised in the medium term, beyond the next election cycle.
Rolling back EU regulations on environmental and social protections will not revitalise Europe’s technological competitiveness. It will, however, undermine living standards, increase dependence on foreign technologies, and fuel public discontent—driving voters further towards the far right as they perceive an EU that no longer protects them.
Reviving the Debate on Common Debt
When Draghi’s report was first released, it seemed to herald a new era—one in which the EU, breaking with neoliberal orthodoxy, would finally equip itself with the financial firepower to drive an ambitious industrial policy, much like the United States, South Korea or China. Instead, it is at risk of becoming a justification for deregulation that could set Europe back decades in social, environmental and consumer protections.
To avoid this fate, the EU must urgently reintroduce the issue of common debt into public debate. If Europe is serious about closing the technological gap, accelerating the green transition and strengthening its defence capabilities, it must mobilise at least 250 billion euro in additional public investment each year. Borrowing this amount—equivalent to just 1.3 percentage points of EU GDP—is entirely feasible. More importantly, it is necessary.
Originally published in French on Le Grand Continent website.
Guillaume Duval is the former editor-in-chief of Alternatives Economiques and former speechwriter of HRVP Josep Borell.