The Draghi Report ‘To Save Europe’: Late, Confused but with Important Findings

European Commission President Ursula von der Leyen… postponed publication of [Mario] Draghi’s report until the day after her reappointment — yet another illustration of the intractably anti-democratic nature of the unelected, untransparent, unaccountable and unable-to-be-removed European institutions.

The remedies proposed by Draghi are… a “targeted” industrial policy, tax cuts here and administrative simplification there. And extra EU spending of “only” €800 billion ($857 billion) a year!

European businesses are regressing because they are being slashed by taxes, tormented by a thousand constantly changing regulations, and are paying between two and ten times more for energy than their global competitors — fatal for 100% of European industry…

[F]orcing businesses and families to opt for more expensive energy sources… does not create any “opportunities”, apart from… “windfall effects” for the recipients of public subsidies. They only create a further worsening of the overall economic situation.

[I]n another report published recently under the aegis of the same European Commission, it was acknowledged that the EU’s starry-eyed energy transition objectives — “zero carbon” by 2050 — would require a whopping €1.5 trillion a year for 20 years. Whatever the verbal packaging, this bagatelle has a cost that will put a strain on European businesses and impoverish European households.

If we stick to the findings of Draghi’s report, however, getting the EU out of its rut is possible, but presupposes the following measures: 1) a drastic reduction in the overall tax burden on businesses (and households), 2) a drastic simplification of European law, which ultimately paralyses and kills initiative, 3) abandoning the authoritarian energy transition in favor of voluntary diversification of the energy mix, and 4) giving innovative entrepreneurs enticing incentives: fighting not their national neighbors but their global competitors.

Draghi’s report proposes an initiative which, while not new, should be implemented without delay: the creation of a European legal vehicle enabling European entrepreneurs to tackle the entire European market head-on, such as introducing a new EU-wide statute for innovative ventures… This simple measure, coupled with administrative simplification, would be consistent with the founding spirit of the European Economic Community, which is the EU common market.

On the whole, Draghi’s report seems worth more for the accuracy of its findings than for the practicality of its recommendations.

“The future of European competitiveness,” a report by former Italian Prime Minister Mario Draghi published by the European Commission on September 9 “to save the European economy,” has been unanimously welcomed by the European media, as likely to propel the European Union out of the nasty rut it has been in for 20 years.

Let us humbly offer a dissenting opinion: it does not seem that Draghi’s report, even if implemented — which is doubtful — will solve anything on a European macroeconomic scale. The problem seems that Draghi refuses to take leave of the Germano-environmentalist myth of a zero-carbon Europe.

Let us start by pointing out that here was a set of objective diagnoses and figures on the European economic disaster, which was typically likely to fuel the democratic debate preceding the European elections on June 6-9, 2024, but also the reappointment of one of the main architects of this European economic catastrophe: European Commission President Ursula von der Leyen.

Energy prices in Europe have exploded since 2022 due to the end of cheap Russian gas, but first and foremost due to the “energy transition”– wanted by… von der Leyen. According to Prof. Samuele Furfari:

"Wind and solar power are inherently intermittent and variable sources of energy -- two words absent from the [Draghi] report -- which heavily penalize the cost of electricity due to the need for sub-optimal operation of the power system. Far from providing 'safe and inexpensive' energy, a power system dominated by renewables requires costly infrastructure for back-up generation, storage and transmission, which in turn increases system costs."

“De-industrialization is happening as we speak,” Marco Mensink, the director general of the European Chemical Industry Council, remarked last month. “The clock is ticking; we have roughly until 2030 before it becomes irreversible.” The European Union was built on the backbone of heavy industry, stemming from the European Coal and Steel Community formed in 1951. The notable downturn in this sector observed since Ursula von der Leyen took the helm of the European Commission has impacted its core symbolic and economic underpinnings. One EU diplomat, speaking under the condition of anonymity to Politico, expressed concern:

"Budget shortfalls are skyrocketing across various economies. If we fail to lower energy costs, the welfare system, as well as our military and defense strengths, could be compromised."

Instead, von der Leyen postponed publication of Draghi’s report until the day after her reappointment — yet another illustration of the intractably anti-democratic nature of the unelected, untransparent, unaccountable and unable-to-be-removed European institutions.

We should be delighted that the economic and ultimately social backwardness of the EU is finally being recognized by those who are responsible for it, namely the EU’s “elites”, of whom Draghi is one of the most accomplished figures. Draghi’s findings are implacable: the average income of Europeans is falling behind that of Americans, European industry is collapsing, and Europe’s share of the economy of tomorrow — the technology sector — is derisory.

The remedies proposed by Draghi are not a surprise: a “targeted” industrial policy, tax cuts here and administrative simplification there. And extra EU spending of “only” €800 billion ($857 billion) a year!

None of this is new; it has already been the subject of numerous “white papers”, recommendations and reports — including those of the European Court of Auditors. Above all, Draghi takes no account of the failure of comparable measures, such as the post-COVID European borrowing and spending, which was a massive fiasco.

Yet, Draghi repeatedly and quite rightly points out that European businesses are regressing because they are being slashed by taxes, tormented by a thousand constantly changing regulations, and are paying between two and ten times more for energy than their global competitors — fatal for 100% of European industry, starting with chemicals.

His recommendations, however, are hardly convincing. What, in essence, is Draghi proposing? A massive new round of borrowing and spending, which is nothing more than a new tax — the repayment of which will contribute to a further deterioration in the competitive position of European businesses.

Next, Draghi suggests forcing the pace of the energy transition. Here again, let us go back to basics: forcing businesses and families to opt for more expensive energy sources — more expensive in themselves, or in their distribution and intermittency — does not create any “opportunities”, apart from what are known in economics as “windfall effects” for the recipients of public subsidies. They only create a further worsening of the overall economic situation.

Draghi is aware of the problem: “there is a risk that decarbonisation could run contrary to competitiveness and growth,” he acknowledges on page 2 of his report’s Foreword. Indeed, in another report published recently under the aegis of the same European Commission, it was acknowledged that the EU’s starry-eyed energy transition objectives — “zero carbon” by 2050 — would require a whopping €1.5 trillion a year for 20 years. Whatever the verbal packaging, this bagatelle has a cost that will put a strain on European businesses and impoverish European households.

If we stick to the findings of Draghi’s report, however, getting the EU out of its rut is possible, but presupposes the following measures: 1) a drastic reduction in the overall tax burden on businesses (and households), 2) a drastic simplification of European law, which ultimately paralyses and kills initiative, 3) abandoning the authoritarian energy transition in favor of voluntary diversification of the energy mix, and 4) giving innovative entrepreneurs enticing incentives: fighting not their national neighbors but their global competitors.

From this point of view, Draghi’s report proposes an initiative which, while not new, should be implemented without delay: the creation of a European legal vehicle enabling European entrepreneurs to tackle the entire European market head-on, such as introducing a new EU-wide statute for innovative ventures (“Innovative European Company”, page 247, part B of the report). This simple measure, coupled with administrative simplification, would be consistent with the founding spirit of the European Economic Community, which is the EU common market.

On the whole, Draghi’s report seems worth more for the accuracy of its findings than for the practicality of its recommendations.