It is now two years since Mario Draghi’s seminal report on the future of European competitiveness was published. Judging by the reaction since then, you could be forgiven for thinking it had never been written at all.
The report he was tasked to deliver by Ursula von der Leyen, the European Commission president, landed in September 2024 with the sort of urgency usually reserved for proper crises. Initially, it spurred leaders to acknowledge that Europe’s sclerotic economy was in trouble and needed fixing.
Across nearly 400 pages, Draghi detailed the widening productivity gap with the US and China, and how Europe had fallen behind. He identified the familiar problems of high costs, excessive regulation, fragmented capital markets, weak productivity and, crucially, an inability to take successful European companies and turn them into global giants. The need to address these difficulties became even more urgent in the age of AI, as the two superpowers leaped ahead of Europe. Draghi called for an additional €800bn of investment every year to create European champions and revive struggling economies.
In the past two years, the gulf in innovation has grown
Failure to progress
Two years on, has anything changed? The signs point to very little, and even Draghi is clearly frustrated by the lack of progress and has become the head of a group of influential business leaders, academics and former policymakers called the Rhine Group to press for the implementation of his report.
If anything, the need to act on his recommendations has become even more urgent. The core priorities of Ireland’s current six-month EU presidency include taking urgent action to enhance competitiveness and productivity, with the One Europe, One Market roadmap identified as ‘a blueprint to achieve decisive progress in 2026’.
Europe’s most valuable businesses are distinctly old-fashioned
In the past two years, the gulf in innovation identified by Draghi has grown. In 2024, AI was still novel and chatbots were arbitrarily making up facts. Now OpenAI and Anthropic are among the most valuable companies in the world, while China has caught up with Silicon Valley with an army of startups of its own.
Where are Europe’s? The answer is that there isn’t one. That was precisely the problem Draghi was trying to solve.
Tech and talent
The most valuable companies are not in the tech sector. Yes, there is ASML, without which the world could not produce cutting-edge chips. However, the majority of Europe’s most valuable businesses are distinctly old-fashioned. LVMH and L’Oréal sit in the top five companies by market value. There is nothing wrong with luxury goods, banking or traditional industry. They are successful, world-class businesses, but they are hardly products of the digital revolution that has transformed the global economy over the past 30 years.
Just as Europe has struggled to produce global champions from the digital revolution, it risks being left behind again as the AI age takes hold.
Europe struggles to hold on to its brightest talent
Europe is very good at research. It is very good at producing engineers and scientists. What it has struggled to do is turn those advantages into companies that can grow at extraordinary speed and scale. It struggles to hold on to its brightest talent, much of which migrates to the US, where it can be capitalised on.
Seeds of hope
There have at least been some tentative signs of movement. Brussels is moving ahead with plans for the so-called 28th regime, which would allow companies to operate across borders under a single set of rules rather than navigating 27 different national systems (see the AB article ‘EU Inc set to boost business’).
There has also been a push to implement the savings and investment union, aimed at unlocking the trillions of euros sitting in bank accounts and directing more of it towards scaling up businesses. Ireland has responded with proposals for a new personal investment account (see the AB article ‘Time for savers to become investors’.
Founders should not need to move to the US to secure venture capital
Both are important steps. The next generation of global companies cannot be built if entrepreneurs have to get past regulatory barriers every time they expand, or if founders need to move to the US to secure venture capital. But they are small moves, not the seismic actions Draghi said were needed.
His report was supposed to be a call to arms about the economic future. Two years later, there is still too much discussion about the cost of acting and not enough about the cost of doing nothing. Draghi has provided the blueprint. What Europe has yet to show is the will to follow it.
