EU challenged to reinvent its economy

The Draghi Report makes radical proposals to boost competitiveness, but some may face political resistance.

- Vikram Khanna

In July 2012, when the European Union was engulfed in its worst financial crisis since World War II, then president of the European Central Bank Mario Draghi announced he would do "whatever it takes" to restore confidence. That did the trick: The markets were reassured and the crisis began to abate.

Twelve years later, Mr Draghi, who later served as Italy's prime minister and is a celebrated policymaker, has come up with a detailed plan of what it would take to restore the EU's economic competitiveness and dynamism.

But this time, reassuring words won't be enough; bold and radical actions will be needed. That's the broad message of the much-awaited Draghi Report which was released recently and could serve as a blueprint for Europe's economic revival. For the new European Commission (EC) which takes charge in Brussels this month for a five-year term, the 400-page report should come as a wake-up call.

E.U. THE LAGGARD

It pulls no punches in describing how far behind Europe's economy has fallen compared with that of the US and even China. It notes, for instance, that just four of the world's top 50 tech companies are European.

Only 11 per cent of European companies have adopted artificial intelligence. Whereas in the US, tech companies dominate R&D spending, in Europe it's still car companies - the same as in 2000. What's more, their competitiveness is eroding in the face of Chinese competition.

Even in the pharma sector, where the EU is supposed to be strong, its share of research and development is less than half that of the US. Between 2008 and 2021, almost one-third of the "unicorns" founded in Europe - start-ups that went on to be valued at over US$1 billion (S$1.3 billion) - relocated their headquarters abroad, with the majority moving to the US.

The productivity of US technology firms has surged by nearly 40 per cent since 2005, yet it's little changed for European companies.