Mario Draghi’s back  — with a lot of work to do

There’s a case to be made that the biggest piece of news in European Commission President Ursula von der Leyen’s State of the Union speech last week was not the opening of a probe into Chinese electric-vehicle subsidies, but the appointment of Mario Draghi to prepare a report on the 27-nation bloc’s competitiveness.

If anyone else had been picked to do it, one might imagine the result being a tome packed with pleas to invest in research, adopt more efficient technology and integrate the EU’s capital markets — something destined to gather dust on a shelf somewhere. The fact that it’s Draghi suggests something more is going on.

The timing of the announcement and the stature of the ex-central banker — famous for his “whatever it takes” commitment to saving the euro — suggests a serious desire to bring in a heavyweight to tip the scales away from polarised Franco-German battles over Europe’s direction. There’s probably also a hope that uber-technocrat Draghi’s “ritorno” takes some oxygen away from more populist voices ahead of next year’s European parliamentary elections.

Yet the real potential lies with the kind of economic growth agenda Draghi might be able to push as the EU grapples with stagflation and global trade tensions. Draghi’s old stomping ground, the ECB, has garnered plenty of justified criticism over deploying the fastest hiking cycle in the euro’s history at a time when demand is weakening. Germany’s economy is expected to shrink 0.3 percent this year, while the euro area’s expected growth rate of 0.6 percent will lag that of the US and Japan. Moves like an EU probe into Chinese EV subsidies show a willingness to flex geopolitical muscles and defend domestic industry, but they don’t answer more fundamental questions. “All of Europe needs to regain competitiveness in crucial industries and countries must abandon the logic of their own personal garden,” says Italian carmaker representative Roberto Vavassori.

Draghi could be a convincing champion for a more integrated EU that invests in growth, infrastructure and productivity, rather than one arranged along national budgetary lines. In a speech to the NBER in July, he said that the EU had “massive investment needs,” including a green transition that will require more than €700 billion ($747 billion) a year to meet climate goals, yet lacked the tools to meet them. In a subsequent op-ed for The Economist, he said more fiscal integration was the only answer to defending against a series of external shocks (Brexit, Covid, war): “Forging a closer union will ultimately prove to be the only way to deliver the security and prosperity that European citizens crave.”