BUDAPEST: Reforming Europe’s economy is all the more urgent following Donald Trump’s US election win, warned the author of a blockbuster report, Mario Draghi, ahead of talks with EU leaders in Budapest on tackling the challenge.

Although Europe’s public reaction to the Republican’s return has been cautious, officials are on full alert over the implications for the EU economy if he delivers on his threats and slaps higher tariffs.

Ex-European Central Bank head Draghi was tasked last year with preparing the economic report that EU chief Ursula von der Leyen will use to steer her next five years in office.

Published in September, the sweeping document raised the alarm over Europe’s failure to keep up with the United States, pointing to the EU’s low productivity and economic slowdown.

“The recommendations in this report are already urgent, given the economic situation we are in today. They have become even more urgent after the US elections,” Draghi said.

The former Italian prime minister rejected a wholly pessimistic take on Trump’s return.

“There is no doubt that the Trump presidency will make a big difference in the relations between the United States and Europe. Not necessarily all in a negative sense, but certainly we must take note,” Draghi said.

With Germany mired in political turmoil, divergent national interests and bitter disagreements over how to face the challenges head on, there is no guarantee that the EU will be able to step up.

But Draghi has warned that failure to heed his recommendations would lead to the bloc’s “slow agony” of decline.

Arriving for Friday’s summit, EU chief Charles Michel said Draghi’s report formed an “excellent basis” for talks and that “everything is on the table,” especially financing.

‘Take time’

The report’s big takeaway is that Europe must invest up to 800 billion euros ($863 billion) more a year to avoid falling further behind the United States.

But there is a lot in the 400-page tome for the leaders to digest before lunch.

Besides his call for more investment to improve economic output, Draghi controversially called for common borrowing _ an idea torpedoed by Germany _ as well as reforming the EU’s approach to competition policy to encourage big spending.

In a draft declaration, the leaders stress “the pressing need for decisive action” and back Draghi’s proposals to deepen the single market, build the capital markets union that would better mobilise private capital as well as a trade policy that defends Europe’s interests.

They agree on “mobilising both public and private financing”, adding they would explore “all instruments... to match our goals”, a controversial inclusion that will likely spark long discussions.

Germany and other frugal northern European countries strongly reject taking on joint debt to finance investments despite the success of the pan-EU 800-billion-euro Covid recovery plan and Draghi’s proposal, backed by France.—

Published in Dawn, November 9th, 2024