Allied Competitiveness Requires Allied Cooperation

Former Italian Prime Minister and European Central Bank President Mario Draghi has released his long-anticipated report, “The Future of European Competitiveness”, which provides a clear-eyed analysis of the competitiveness challenges facing the EU. He concludes that fragmentation and a lack of coordination is preventing Europe from leveraging its size and scale in three critical areas—innovation, climate, and security. His proposed solutions are bold and will be challenging to implement. But a lack of action will lead to declining competitiveness and lower growth, threatening the EU’s future. The call for radical, courageous change is clear, but it may still be insufficient to spur the EU to act.

The report urges the bloc to:

• close the innovation gap and improve the ability of European startups to commercialize or scale, as a first priority
• address the climate crisis and encourage decarbonization while avoiding negative impacts on Europe’s industrial base, as a second priority
• build security and resilience, and lower EU dependencies and supply chain vulnerabilities

The report includes trade policy recommendations and calls for Europe to remain open but take a more tailored approach. This includes pursuing more trade in technology and digital products but playing defense to protect European industry from unfair trade practices.

The United States should support EU actions to improve its competitiveness, as Washington needs independently strong and vibrant allies that can confront growing international challenges. The EU, in any case, will not be able to implement such a bold agenda without partners. The bloc should find areas of common interest with the United States in their individual competitiveness agendas and identify issues on which cooperation offers more benefits than going it alone. Biotechnology and defense are two industries noted in the report, and they are areas of potential joint transatlantic work. Aerospace is another obvious sector, and the transatlantic partners should develop a joint strategy to maintain Boeing and Airbus’ dominance in large civil aircraft.

The Draghi report provides strong justification and recommendations for the EU, but European governments need to prioritize and act now. The recommendations include many smaller actions that, when stacked together, can have outsized impact and successfully unlock Europe’s potential. An effort to achieve just that, with US backing, could well boost allied competitiveness.

For more on allied competitiveness and the EU, see the GMF report Keeping Europe Competitive.