Salvation or disaster with the Draghi report?*

By Maria Negreponi – Delivanis                                                                   13.11.2024

Mario Draghi's 400-page study has the overarching goal of revitalizing the EU's competitiveness. The pervasive anxiety, which overwhelms the work at hand, in spite of the author's specialized knowledge and experience, foreshadows the essentially insurmountable difficulties of the whole project. It should be noted from the outset that this study bypasses the dominant problem of our time, which is certainly not the EU's low competitiveness vis-à-vis the USA, while it then deals with unrealistic assumptions and proposals which, even if they are eventually implemented, will be disastrous, especially for the European South. 

 

 

Ι. The problem is not Europe's economic underdevelopment vis-à-vis the USA

Indeed, the European economy is lagging behind the American economy in several respects, since the former is experiencing a period of stagnation and is already in crisis, while the latter is still experiencing anemic growth rates. However, the revitalization of European competitiveness vis-à-vis that of the USA, which is being sought through the Draghi report, even if it were possible, which it appears not to be, would not ensure the desired solution. For the problem is not the EU's sluggishness, but the inability of the entire West to compete with the rapidly rising South, with China leading the way. The EU is part of the declining West, and therefore does not face the problem of low competitiveness in isolation, but jointly with the US. Their common adversary is the aggressively growing South, known as the BRICS. The BRICS, created in 2009, was originally composed of 5 countries, Brazil, Russia, India, South Africa and China. Egypt, Ethiopia, Iran, Saudi Arabia, Egypt, Ethiopia, Iran and UAE were subsequently added and applications for membership are pending from Azerbaijan, Thailand, Vietnam, Bangladesh and Turkey. Indifferent until recently, the West is suddenly finding that the BRICS represent an "integrated South", which is turning against it, with China leading the way, and which is already competing ruthlessly with it at all levels and in all sectors.

The BRICS already account for almost half the world's population (46.6%), their economic weight in terms of purchasing power in world GDP has already exceeded that of the G7 (36% against 35%). In 20 years the BRICS have doubled their share of international trade from 20% to 40% and the expansion of China's trade with Latin America is already terrifying the West. By 2050 it is projected that the BRICS will have 50% of the world's wealth, compared to 20% for the G7, secure 38.3% of global industrial production, account for 40% of global infrastructure investment, control 53% of natural gas reserves, 40% of coal reserves and almost half of food production. They will, among other things, determine the international price of oil, while dangerously limiting the global dominance of the dollar. Finally, the BRICS are expected to dominate the market for critical and strategic metals and minerals necessary for the energy transition and advanced technologies.

This BRICS competition has already brought Europe to its knees, with devastating consequences for its flagship, Germany, whose car industries are struggling, many of its businesses are heading for relocation to China and its economy is in crisis. The somewhat better state of the US economy is due, to a large extent, to the fact that it has not been burdened by the high energy prices that have crushed Europe. But it is also being hammered by competition from the South and is looking for solutions in a greater degree of self-sufficiency, in the imposition of import restrictions, especially from China, and even in the unorthodox thought of resorting to a second industrialisation. This grim reality does not allow for fantasies of 'the river can turn back'.

II. The false hopes of the Draghi report

With these grey facts about the present and the future of the West (cf. I), the Draghi report, which aspires to save Europe, appears with strong elements of Doncivism, such as, among others:

*Expenditure. The annual spending on growth investments that are supposed to resurrect the dying Europe has been estimated by Mr. Mario Draghi at €800 billion, annually. The thorny question is where they will come from, given that the EU's annual budget does not exceed €300 billion. To this end, the report proposes the creation of a common debt of the Member States, by creating a European bond, which is believed to attract the savings (more correctly, hoarding) of the citizens of the Member States. However, the lack of consensus and unity within the EU has already provoked opposition from a good number of Member States, led by Ireland and Luxembourg. It should be noted, however, that any final adoption of the plan would mean an austerity obligation on the part of the member states much harsher than the one that is permanently in place through the Stability Pact. And unfortunately, austerity will be more painful for the South, with lower growth and lower incomes than in the North of the EU. In the South, which paid for Germany's chronic surpluses with its own deficits.

*Development investment. The Draghi report bases the EU's salvation on investment. But, what kind of investments can be chosen to realise the report's main objective when they involve such an economically uneven union of states as the EU? Suffice it to recall that the GDP per capita of rich Luxembourg is 6.5 times higher than that of the poorest Member State, which is Bulgaria. And furthermore, how will the low productivity of services, which is overwhelming the EU, be addressed? Perhaps by resorting to the utopia of a new industrialization?

*Extreme liberalism. The Draghi report, true to the principles of extreme liberalism, envisages a ratio of 80% private to 20% public investment. In this case, a higher proportion of public investment should be provided for, so that it is directed towards the sectors selected by the report, and not towards any private preferences.

III. South Europe and first of all Greece, again the victim

Especially for Greece, any implementation of the Draghi plan will mean a further deterioration of the already painful situation it has been enduring under the Memoranda, not only because it will be obliged to participate in the common European debt, but also because Eurostat has recently changed the way debt is calculated, so that the debt-to-GDP ratio will jump from 161.9% now to 167.5%. When the country was dragged into the IMF in order to be saved, the above ratio was 126%.

IV. What conclusion can be drawn from the above?

I'm afraid it boils down to the fact that, wishes and good intentions fail to reverse the grim reality: The West is in rapid decline against the emerging South.

*Already published in several websites in greek