ABN Amro: Draghi plan is blueprint for the future of EU integration
PS: Investment bank ABN Amro have just published their “initial take” on Draghi’s competitiveness report.
They point out that the “ambitious proposals” are effectively a plan for the future of EU integration. The call for common eurozone debt will be a political hot potato too, while Draghi’s points about mis-aligned government policies are well made.
Here’s what ABN Amro say:
Ambitious proposals are no less than a blueprint for the future of EU integration
Former ECB president and Italian prime minister Mario Draghi’s long-awaited report on competitiveness was finally unveiled this morning, and it was unexpectedly substantial and concrete in its proposals. The report tackles a host of critical competitiveness issues facing Europe, from energy and decarbonisation, to lowering regulatory and other barriers for high-innovating tech unicorns (which typically move to the US to achieve sufficient scale), to strengthening industrial capacity (which also has implications for defence – a topic of increasing geopolitical importance). Its flagship proposal is for €800bn in additional EU investment annually, to be partly funded by the common issuance of new common debt. Crucially, the case for common debt issuance rests not only on financing need, but also to “make the [Capital Markets Union] much easier to achieve and more complete,” by: 1) facilitating the uniform pricing of corporate bonds, 2) providing a safe collateral instrument for member states, 3) a “large, liquid market” for global investors “enhancing the role of the euro as a reserve currency.”
The proposals face an uphill political struggle, to put it mildly
In the press conference accompanying the report, European Commission president Von der Leyen was immediately asked for her views on the call for new common debt issuance. Her response was understandably neutral, given the political sensitivity of the topic. She stated that the first priority was to identify the ‘common projects’ where member states could cooperate, and then decide whether these should be financed through higher contributions or through ‘new own resources’. When Draghi himself was pressed on this topic, he pointed to the possibility of using the EU’s enhanced cooperation mechanism – or even a separate intergovernmental agreement outside the EU structures – to allow a ‘coalition of the willing’ to forge ahead on debt issuance if unanimity could not be achieved on the issue. Given the political momentum of populist, anti-EU parties at present (see also here), the environment is hardly conducive to the proposals being adopted as they are. A memorable moment in the press conference came when a journalist asked if the report represented a ‘do or die’ moment for the EU; Draghi responded it was rather a ‘do, or slow agony’. Typically, crises are needed to push EU integration forward, and it could be that the ‘slow agony’ of the EU’s competitiveness problem will not be enough to galvanise the political will to overcome it.
But there is much more to the report than common debt
While this was the most headline-grabbing proposal, the report made many pertinent observations with less controversial, actionable measures. For instance, in the press conference Draghi pointed out that the mandate to phase out internal combustion engine cars was not accompanied by investment in energy infrastructure to support the roll-out of EVs. Or the fact that energy taxation in Europe is relatively high as well as uneven across member states, aggravating the impact of the rise in wholesale energy prices. Policy goals are often misaligned and even compete with one another, with decarbonisation an impediment to growth rather than the growth impulse that it could be.
Closing post
Time for a recap:
The EU should fear for its self-preservation as it faces a “slow and agonising decline”, according to a hard-hitting report by the former Italian prime minister Mario Draghi that calls for an €800bn-a-year spending boost to end years of stagnation.
Warning that the Covid pandemic and Ukraine war had changed the rules of international trade to the EU’s detriment, he said the bloc needed additional investment of €750bn-€800bn a year – equivalent to 5% of the EU’s annual economic output – to build a more resilient economy and regain previously high rates of productivity growth.
“We are already in crisis mode and to ignore this is to slide into a situation you don’t want to have,” said Draghi, who is also a former head of the European Central Bank.
In a wide-ranging report, Draghi said Europe should start regularly issuing “common safe assets” to fund joint investment projects among Member States, co-ordinate better on defence spending, and improve its access to raw materials.
And in a stark warning, he said:
“We have to understand we are becoming ever smaller relative to the challenges we face. For the first time since the cold war we must genuinely fear for our self-preservation.”
German economy minister Robert Habeck welcomed the proposal, saying:
“The whole of Europe is facing existential challenges that we can only overcome together.”
But, the Dutch government cautioned that public investments must not be seen as an “end in themselves.”
In a gloomy day for European economic news:
Swedish manufacturer Northvolt is to cut a large number of jobs and sell or seek partners for its energy storage and materials businesses.
Germany has entered a three-quarter-long recession, according to investment bank Nomura
Elsewhere today….
In the financial markets, shares have rallied in New York and across Europe, following losses on Friday when the latest US jobs report came in below forecasts.
The UK is missing out on billions of pounds of revenue each year from small retail businesses that exploit weaknesses in government systems to evade paying tax, the public spending watchdog has warned.
Aldi has said the price of a basket of its goods is lower than a year ago despite ongoing grocery inflation, as the discount chain tries to fight back against increasing pressure from rivals’ price-matching schemes.
Barratt and Lloyds Banking Group have launched a £150m joint venture with the government body Homes England that will lead to the UK’s largest housebuilder and mortgage provider capitalising on Labour’s plans to build 1.5m new homes.
The Bank of London, the fledgling clearing bank backed by the Labour grandee Lord Mandelson, has announced it has raised another £42m from investors days after being hit by a winding-up order by tax authorities.
The oil and gas supermajor BP is to use artificial intelligence to speed up the decision-making of its engineers, after signing a five-year deal with the US spy technology company Palantir.
Updated
