Draghi: Europe in an ‘existential’ crisis

Former European Central Bank chief Mario Draghi has produced a revealing study on behalf of the EU on the (lack of) ‘European competitiveness’. The former ‘saviour’ of the euro outlines an imperialist offensive as the solution.

[Originally published in German at derfunke.at]

Draghi's study speaks for itself: the EU is being left behind by the US and China. He analyses: once the EU in particular benefited from global free trade, but today it finds itself on an ‘unequal global playing field’ that must now be ‘redressed’. The second major problem is the lack of innovativeness in European industry, which is leaving labour productivity in Europe trailing behind the US and China.

Draghi suggests that digitisation, decarbonisation and armaments are the three major fields of the future in which investments must now be made in order to achieve victories in the international competition between monopolies. To this end, he advocates that the share of investment relative to economic output (GDP) must be increased by 5 percentage points. That would mean 27 percent of GDP going to investments, which was last the case in the booming 1960s. This corresponds to additional spending of €750-800 billion annually.

Since private companies will not achieve this on their own, a new ‘Marshall Plan’ should be launched, four times larger than the one after the Second World War. According to Draghi, higher budget deficits are acceptable for these investments.

But capital alone is not enough. According to Draghi, industry, research, education, strategic trade policy, securing raw materials, autonomy in key technologies and military power are fields of action that must be pursued in a coordinated and targeted manner.

To this end, the political process in Europe, which has so far been based on consensus among all member states, must be ‘dynamised’. In order to develop sufficient clout on the world market, larger European corporations must emerge, for which more centralisation (in all areas: capital markets, energy supplies, research and development, universities, EU budget and debt, foreign policy, etc.) would be needed. Because: “Europe must react to a world with less stable geopolitics, in which dependencies become weak points and it can no longer rely on others for its security. […] A modern competitiveness agenda must also include security.”

Problem: Europe is being left behind

Draghi paints a picture of the EU's decline in recent years: average annual economic growth since 2002 has been 1.4 percent in the EU-27, 2 percent in the US and 8.3 percent in China. Factors that continued to support growth in the EU during this period – the expansion of world trade (in 2019, international trade accounted for a high of 43 percent of EU-27 GDP); cheap energy from Russia; low military spending due to US global hegemony – are already history.

The decoupling from Russian gas alone destroyed a year of economic growth. At the same time, the productivity growth of the European economy, at 0.7 percent per year, is only half as fast as that of the USA, which is leading in information technology. The EU has simply been caught napping in the tech sector. Since the financial crisis of 2008, private investment in Europe has fallen particularly sharply.

The decoupling from Russian gas alone destroyed a year of economic growth / Image: rawpixel.com

The lack of a unified European banking market and the largely unsuccessful privatisation of the pension system mean that there is insufficient capital available for investment in new technologies, which will accelerate the productivity gap in the long term. Draghi estimates that the application of artificial intelligence (AI) to the European pharmaceutical industry alone could generate additional profits of up to €110 billion.

But the “small size of European companies” and of Europe's national markets (with their different tax and funding models, technical regulations, small data sets, etc.) does not allow the economies of scale of AI to be exploited. To train new AI models to develop, for example, new materials, would cost around €1 billion, and the costs would skyrocket with each additional area of application. No European company can raise that much venture capital.

None of the ten largest companies researching the development of quantum computers is based in the EU. The fragmented national energy and data cable infrastructure even restricts the efficient operation of data centres in Europe. The largest data centres currently consume well over 100 megawatts on average – that is roughly equivalent to half the average electricity consumption of the Austrian Federal Railways or the city of Linz. Compare this to what Sam Altman, CEO of OpenAI, would like to see: data centres in the 5-gigawatt power range. This is the equivalent of about five nuclear power plants worth of energy.

Draghi warns: if productivity growth remains at the level of the past decade, this means that EU-27 GDP will stagnate by 2050. The age structure of the continent alone will cause the labour market to shrink by two million wage earners per year from 2040. Fewer exploitable wage earners means less profit. It's as simple as that.

A combination of high public debt, persistently ‘high’ interest rates, and higher spending on investment in decarbonisation, digitalisation and rearmament could trigger a new sovereign debt crisis, even without new economic or military crises… and we know that is out of the question.

Decarbonisation and competitiveness

According to Draghi, half of companies see energy prices in Europe as an obstacle to investment. Current EU legislation means that energy-intensive sectors of production (chemicals, metals, paper) will have to invest €500 billion over the next 15 years to achieve the legally prescribed CO2 reduction targets. Ultimately, these production facilities for basic materials must be kept in Europe for ‘security reasons’. In the transport sector, €100 billion will have to be invested annually by 2050.

According to Draghi, half of companies see energy prices in Europe as an obstacle to investment / Image: European Parliament, Flickr

‘Clean tech’ – i.e. green technologies – could make energy production cheaper in the long term and create new innovative products with global market potential. However, this plan is lagging behind China, which has now taken the lead in the development and production capacity of many such new technologies. By 2030, China's battery production alone should be able to meet global demand, while its solar panel production capacity is estimated to reach twice the level of global consumption.

European wind turbine production is also under severe pressure from Chinese competition, and the same prospects loom for other technologies. Draghi describes how, in the years 2015-19, 65 percent of patents for hydrogen production were still registered in the EU, but how by 2020-22, their share fell to 10 percent. Even where there are innovations, corporations and European capital markets are too small to profitably implement them when competing on a global scale.

Draghi claims that China subsidises twice as much clean tech production as the EU, and the US subsidises five to ten times more. If China followed a similar subsidy path in the electric vehicle industry, the EU's domestic production of electric vehicles would fall by 70 percent and its global market share would drop by 30 percent. 14 million workers are employed in the automotive industry.

Draghi criticises the fact that the EU has decided to phase out combustion engine technology by 2035 without developing an overall plan. Now he is proposing a mixed strategy depending on the industry: free trade; forced technology transfer and minimum quotas for European components; protectionism; permanent subsidies for selected ‘clean tech’ industries to boost them to the level of world market giants; state purchase guarantees for young industries; a rescue of the automotive industry; and the end of CO2 pricing for energy-intensive industries. The disadvantages of “unfair competition from abroad and ambitious climate targets” would have to be offset.

Militarisation

The battle for markets and spheres of influence is clearly being fought out on a world scale, and not only by more efficiently exploiting the domestic market.

Draghi describes how “Europe is now confronted with conventional warfare on its eastern border and hybrid warfare everywhere, including attacks on energy infrastructure and telecommunications, interference in democratic processes and the weapon of migration. At the same time, the US strategic doctrine is shifting away from Europe and towards the Pacific Basin [...] driven by the perceived threat from China. As a result, the need for defence is growing.”

Dependencies on critical raw materials and future technologies are ‘strategic vulnerabilities’ that account for about a fifth of EU imports.

Draghi says that the EU and its member states have relied too heavily on the US, and have neglected their own military spending / Image: NATO North Atlantic Treaty Organization, Flickr

Access to raw materials and the establishment of a supply chain for chip production will prove expensive, as political control over production, rather than efficiency, becomes the central criterion. China has gained a significant advantage in Africa. Europe’s weakness is that its trade in raw materials is left to private actors and the market. The days when the virtues of the ‘free market’ were praised at the global level are over. Instead, Draghi outlines his plan in a classically imperialistic manner: “The EU must develop a genuine ‘foreign economic policy’ based on securing critical resources.”

Draghi quotes figures from the EU Commission which show that, in the next decade, defence spending in the EU alone will have to increase by €500 billion to achieve this. He says that the EU and its member states have relied too heavily on the US, and have neglected their own military spending. Arms deliveries to Ukraine have depleted stocks and shown that the arms industry is also too small.

In terms of technology, European tanks, submarines, etc. are on a par with or even better than those of the USA. But the innovative strength of the European arms industry is at risk of falling behind, since the USA spends €130 billion annually on military research alone, and the EU only €10.7 billion (as of 2022).

The finances for the development of complex military systems of the future cannot be raised by the individual European nation states, hence the call for Europe to develop drones, hypersonic missiles, energy weapons, military AI, seabed and space weapons! Instead, he criticises the waste of capacity in the EU, which is producing 12 different battle tanks.

Textbook imperialism

Draghi's report is a strategy consciously adapted to the tendencies of modern capitalism. In the words of a serious strategist of capital, he expresses what Lenin had to say about the highest and final stage of capitalism, imperialism, over a hundred years ago: it is characterised by general social decay under the iron fist of an immense concentration of capital and power. You can only use modern technology profitably if you control the world market. But this domination must be fought for, by force.

The immense potential for the satisfaction of all human needs – which could only be realised under a democratic, worldwide planned economy – thus becomes, in the straitjacket of the nation state and private property, a driving force for militarism against other groups of capitalists and nation states, and for social attacks against the working class. Draghi underlines the tendencies inherent in capitalism with figures, data and facts.

Draghi's report is a strategy consciously adapted to the tendencies of modern capitalism / Image: Attili Filippo, Wikimedia Commons

In doing so, he boldly highlights the parlous position of Europe's ruling classes. His report is intended to galvanise the political elites to take on the challenges of imperialist competition from the US and China, and to confront them offensively. The imperialist guiding principles of his report are already shaping politics in Europe.

But the catch with Draghi's perspective is that a single, centralised European state, which would ultimately be necessary for his project, will not come into existence. European capitalism is and will remain structured along national state lines. There is no social class that could be the bearer of a unified imperialist European power under capitalism.

Draghi is correct to state that many Lilliputian states, including Austria, are negligible in the concert of great EU powers, and that their interests can be bent by Berlin or Paris (and also by Beijing and Washington).

But when he calls for Europe to produce a single, common battle tank, or for one or two European mega-banks that could challenge the competition at the global level, the question immediately arises: who among the European ruling classes, which are mutually hostile to each other, would ultimately control them? Which country controls Europe itself: Germany or France? And with whom do Italy, Spain or Poland ally themselves?

Recent years have shown how the crisis of capitalism has further intensified these contradictions, rather than resolving them, a necessary precondition for the plans of the strategists of capital.

The intra-European national contradictions can never be resolved peacefully on a capitalist basis. The global military power of the USA is dwindling and its public finances are in complete disarray. China is increasingly characterised by immense overproduction. In the long term, however, Europe will continue to fall behind these imperialist rivals due to its fragmentation.

On a global scale, Europe is and will remain a Balkanised continent. This weakness of capitalism in Europe will open opportunities for the working class to overthrow those in power, to expropriate the corporations, to tear down the borders, and to establish a peaceful, democratically planned economy within a United Socialist States of Europe.