Social Europe

  • EU Forward Project
  • YouTube
  • Podcast
  • Books
  • Newsletter
  • Membership

Why the Draghi Report on EU markets matters

Howard Davies 7th October 2024

Can Europe overcome its capital market flaws and catch up to the US? The Draghi Report sounds a critical alarm for the EU’s future.

shutterstock 2514345913
Press Conference on the Report on the Future of EU Competitiveness in Brussels (photo: Alexandros Michailidis/shutterstock.com)

Judging by its strong, dramatic language, Mario Draghi’s big report on European competitiveness was clearly intended to get EU decision-makers’ attention. Rather than trying to sugarcoat the pill, he warns that Europe is falling ever further behind the United States. Not only has it largely missed the digital revolution, but it is about to miss the AI revolution, too. Not one European technology firm can rival the likes of Apple or Microsoft. 

Moreover, Draghi notes that productivity growth across the continent is lagging that of the US, confronting the European Union with an “existential challenge.” If it does not “radically change” its ways, it “will have lost its reason for being.” Even as wake-up calls go, this was a loud one – the kind that some alarm clocks make if you ignore their first polite nudges. 

Draghi’s conclusions will be music to the ears of the dwindling band of Brexiteers in the United Kingdom, because they have always peddled European sclerosis. In making the case for “Leave,” they argued that the UK was bound to a dead donkey and needed to break free. 

But Draghi is no Euroskeptic or enthusiast for subsidiarity, and most of his recommendations would require “more Europe” in the form of coordinated policies and a huge boost to publicly funded investment at the EU level. He argues that an additional €800 billion ($892 billion) of investment is urgently needed to address the productivity problem and turbocharge the transition to a green economy. Predictably, this proposal has met with enthusiasm in Rome, cautious acceptance in Paris, and howls of protest in Berlin. 



Don't miss out on cutting-edge thinking.


Join tens of thousands of informed readers and stay ahead with our insightful content. It's free.



But in specific chapters that have attracted less attention, Draghi also addresses the EU’s financial and regulatory structure. He thinks Europe is too dependent on bank finance, and he is clearly right. New growth companies (of which there are far fewer than in the US) tend to be funded by US venture capitalists, and 30% of euro-unicorns (private start-ups valued at $1 billion or more) have moved their headquarters across the Atlantic as soon as the market has recognized their potential. 

The primary reason for this sad state of affairs is that European capital markets remain fragmented. The plan to fashion a capital-markets union has made little headway ever since its launch in 2015 (by Jonathan Hill, then the UK’s commissioner in Brussels). Part of the problem is political. EU politicians, especially left-leaning members of the European Parliament, remain suspicious of securitization (a key pillar of the plan), because they continue to associate the concept with the US subprime mortgage crisis. 

In any case, Draghi gives the initiative another push, recognizing that it is the only way to address European companies’ excessive reliance on bank finance. But he also views the absence of a powerful securities regulator as another big part of the problem. 

It is not a new thought. Around 15 years ago, Jacques de Larosière, who formerly served as president of the European Bank for Reconstruction and Development, recommended a European Securities and Exchange Commission in his post-2008 report on financial regulation. Instead, the EU created a halfway house in the form of the European Securities and Markets Authority. 

While ESMA does useful work and has established itself as a key part of the EU financial architecture, it falls well short of being a European counterpart to America’s SEC. For example, it directly oversees credit-ratings agencies and a few other pan-European entities, but not local stock exchanges. Thus, capital-raising methodologies vary from country to country, creating a serious handicap for aspiring entrepreneurs and most companies. 

Even if the campaign to create a more powerful agency is not new, it has been strengthening lately. European Central Bank President Christine Lagarde has made the same recommendation, and its inclusion in Draghi’s report puts it firmly on the agenda of the new Commission under Ursula von der Leyen. 

Yet even with such powerful backing, success is not assured. To create a plenipotentiary body with the full suite of powers that have been proposed would require a treaty change, and the European Council has avoided such moves ever since the Treaty of Lisbon in 2009. Many European leaders fear that revising the EU’s foundational treaties could open questions they would rather not address. Some countries inevitably object to granting new powers to a centralized authority, and some would have to conduct a referendum to ratify it, creating opportunities for subversive Brexit-like forces to emerge. Moreover, most referendums on European integration have failed the first time. 

Nonetheless, quite a lot could be achieved without a new or revised treaty. One of Draghi’s key recommendations is to make ESMA’s governance structure more like the ECB’s. Its council is dominated by representatives from member-state regulators, whereas the ECB’s directorate includes six people who are required to act in the European interest, not that of their home country. 

It is also possible to put European stock exchanges and clearing systems under ESMA’s purview. But this would not be a trivial move. Would the French government allow the Bourse de Paris to be overseen by a European regulator, even one headquartered in Paris? The German government is openly hostile to the idea of a cross-border merger of UniCredit and Commerzbank, even though the latter is in sore need of a new direction. Would it allow the Deutsche Börse to be regulated from Paris? 

If European Council members really want a capital-markets union, they will need to set national considerations aside and swallow their pride. The coming months will show us how committed they are to restoring European competitiveness in a world where they are falling further behind.

Copyright Project Syndicate

Howard Davies
Howard Davies

Howard Davies, the first chairman of the United Kingdom’s Financial Services Authority (1997-2003), is Chairman of NatWest Group. He was Director of the London School of Economics (2003-11) and served as Deputy Governor of the Bank of England and Director-General of the Confederation of British Industry.

Harvard University Press Advertisement

Social Europe Ad - Promoting European social policies

We need your help.

Support Social Europe for less than €5 per month and help keep our content freely accessible to everyone. Your support empowers independent publishing and drives the conversations that matter. Thank you very much!

Social Europe Membership

Click here to become a member

Most Recent Articles

u4219834c92bed 3 AI’s Impact on Europe’s Job Market: A Call for a Social CompactFederico Pozzi, Pietro Valetto and Elizabeth Kuiper
u421983d2 3 The EU’s Landmark Mercosur Deal Promises Much But Delivers LittleSimela Papatheophilou, Werner Raza and Bernhard Tröster
u4219834af 1 Will Denmark Lead Europe Towards a Super-Rich Tax?Isabelle Brachet
611e8de7e149c8763c9d58fc537549c18d20044a0abfeadd41919a1a731b6e64 Britain Rediscovers Europe as Macron and Merz Lead a Democratic ReawakeningPolly Toynbee

Most Popular Articles

u4219834676 bcba 6b2b3e733ce2 1 The End of an Era: What’s Next After Globalisation?Apostolos Thomadakis
u4219834675 4ff1 998a 404323c89144 1 Why Progressive Governments Keep Failing — And How to Finally Win Back VotersMariana Mazzucato
09d21a9 The Future of Social Democracy: How the German SPD can Win AgainHenning Meyer
u421983462 041df6feef0a 3 Universities Under Siege: A Global Reckoning for Higher EducationManuel Muñiz

Hans Böckler Stiftung Advertisement

WSI Report

WSI Minimum Wage Report 2025

The trend towards significant nominal minimum wage increases is continuing this year. In view of falling inflation rates, this translates into a sizeable increase in purchasing power for minimum wage earners in most European countries. The background to this is the implementation of the European Minimum Wage Directive, which has led to a reorientation of minimum wage policy in many countries and is thus boosting the dynamics of minimum wages. Most EU countries are now following the reference values for adequate minimum wages enshrined in the directive, which are 60% of the median wage or 50 % of the average wage. However, for Germany, a structural increase is still necessary to make progress towards an adequate minimum wage.

DOWNLOAD HERE

S&D Group in the European Parliament advertisement

Cohesion Policy

S&D Position Paper on Cohesion Policy post-2027: a resilient future for European territorial equity

Cohesion Policy aims to promote harmonious development and reduce economic, social and territorial disparities between the regions of the Union, and the backwardness of the least favoured regions with a particular focus on rural areas, areas affected by industrial transition and regions suffering from severe and permanent natural or demographic handicaps, such as outermost regions, regions with very low population density, islands, cross-border and mountain regions.

READ THE FULL POSITION PAPER HERE

ETUI advertisement

HESA Magazine Cover

With a comprehensive set of relevant indicators, presented in 85 graphs and tables, the 2025 Benchmarking Working Europe report examines how EU policies can reconcile economic, social and environmental goals to ensure long-term competitiveness. Considered a key reference, this publication is an invaluable resource for supporting European social dialogue.

DOWNLOAD HERE

Eurofound advertisement

Ageing workforce
The evolution of working conditions in Europe

This episode of Eurofound Talks examines the evolving landscape of European working conditions, situated at the nexus of profound technological transformation.

Mary McCaughey speaks with Barbara Gerstenberger, Eurofound's Head of Unit for Working Life, who leverages insights from the 35-year history of the European Working Conditions Survey (EWCS).

Listen to the episode for free. Also make sure to subscribe to Eurofound Talks so you don’t miss an episode!

LISTEN NOW

Foundation for European Progressive Studies Advertisement

Spring Issues

The Summer issue of The Progressive Post is out!


It is time to take action and to forge a path towards a Socialist renewal.


European Socialists struggle to balance their responsibilities with the need to take bold positions and actions in the face of many major crises, while far-right political parties are increasingly gaining ground. Against this background, we offer European progressive forces food for thought on projecting themselves into the future.


Among this issue’s highlights, we discuss the transformative power of European Social Democracy, examine the far right’s efforts to redesign education systems to serve its own political agenda and highlight the growing threat of anti-gender movements to LGBTIQ+ rights – among other pressing topics.

READ THE MAGAZINE

Social Europe

Our Mission

Team

Article Submission

Advertisements

Membership

Social Europe Archives

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Miscellaneous

RSS Feed

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

BlueskyXWhatsApp