Dragging the EU into the future

It is always a pleasure to look at what is happening in the EU and see that it is very far from being the dictatorial monolith that the Brexiteers have conjured up to scare the children.

In fact, many of the problems that the EU faces – and there are many – can be explained by the fact that it is not as coordinated, controlling and omnipotent, as it is sometimes portrayed. That fact is made all too clear by the latest report into the EU’s productivity and economic growth by Mario Draghi, former PM of Italy and head of the European Central Bank. It makes for stark reading, finding that: the EU’s economy is stagnating, especially in comparison with America and China; Europe’s productivity is “weak, very weak”; the EU faces a “slow and agonising decline”; there needs to be much more spending on defence; Covid has changed trading patterns permanently, to Europe’s detriment; and lower fertility rates mean Europe can no longer count on an increasing population to boost growth.

The proposed solutions to this crisis are many and varied, for a start the EU’s member states, or the EU itself, needs an €800 billion boost in spending, every year, to regain higher rates of productivity growth. This is about 5% of all member states’ GDP combined — a huge ask. He wants better functioning capital markets too.

Draghi also calls for better coordination of spending, especially on defence, which is desperately needed. He also wants an overhaul of the energy markets so that everyone gets cheaper renewable energy

Competition law needs to be interpreted differently and the EU needs to create continent-wide giants. Promoting and preserving national champions belongs in the history books and too much emphasis has been placed on consumer protection rather than international competitiveness.

All of this will need far more cooperation and money, but there it runs up against an intractable problem. Even if the member states could raise all the money needed, their politicians don’t want to hand it to Brussels to spend. But without coordinated, Europe-wide policies, much of the money will be wasted.

This has always been the huge flaw in the European project. The Brexiteers in Britain always saw the EU as a huge monster that spent all our money. In fact, its budget is minute compared to that of its member states, all of which jealously guard their money, their industries and their spending schemes.

Draghi’s report is therefore a warning to the EU member states that, without more spending and coordinated policies, they will continue in relative decline and may soon find themselves living beyond their means. “We will have to scale back some, if not all, of our ambitions”.

But one of the greatest tragedies is that if the UK was still in the EU, we would have been pushing for many of these reforms, perhaps not the coordinated defence spending, but different competition rules, energy market reforms, better capital markets and so on.

But as it is, we are outside and looking in helplessly, with even lower productivity than our European rivals, a constantly shrinking stock market, numerous firms leaving for America and even lower investment. As a result, we have had in the UK an almost constant scaling back of our ambitions.