A manifesto for future Europe
At the third Paris Symposium, Mario Draghi delivered a speech that – if we were not increasingly distracted by the howls of a hysterical public debate – would go down in history as a new whatever it takes for Europe. If in 2012 those words were uttered to save the euro at a critical moment, today Draghi is making an equally decisive appeal, aimed no longer just at monetary stability, but at economic competitiveness and the survival of the European social model. He has no role, no power, but more than in 2012 today Super Mario has a sense of history. His intervention represents a real call to action.

Who will know how to harvest it? Voice that cries out in the desert or seed that will germinate?

Europe lost along the way

In his speech, which we reproduce in the attached file below, the former president of the European Central Bank draws a stark and lucid diagnosis of the European economic situation. In the post-war period, European labour productivity rose from 22% of the US level in 1945 to 95% in 1995. An impetuous ride, which then came to a halt. Two major shocks marked the stagnation of productivity on the continent (obviously, with differences between and within countries): the technology boom linked to the advent of the Internet, which saw Europe lag behind the United States, and the financial crises that hit the Eurozone.

From 1995 onwards, the productivity gap between Europe and the US has widened dramatically, mainly due to the faster growth of the technology sector in the US and the disasters of the global financial crisis and the sovereign debt crisis, which induced a change of course in European economic policies: from a model based on domestic demand, we moved to one based on trade surpluses and external investment. As Draghi points out, this has led Europe to become a structural exporter of capital, sacrificing domestic growth and innovation.

The political choices that aggravated the decline

According to the former Italian premier, much of the current difficulties stem from deliberate political choices rather than unavoidable circumstances. “European policies have tolerated low wage growth as a means to increase external competitiveness,” he explained in Paris, pointing out that this choice has further weakened the income-consumption cycle. Since 2008, real wage growth in the US has been almost four times higher than in Europe.

Another strategic mistake was the failure to complete the single market. The former tenant of the EuroTower pointed out that internal barriers within the EU amount to implicit tariffs of 45% for manufacturing and 110% for services. This hinders not only internal trade, but also the ability to attract investment and create economies of scale. By comparison, internal barriers in the US are three times lower. “If these barriers were reduced to US levels, labour productivity in Europe could grow by 7 per cent in just seven years,” says Draghi, citing IMF estimates.

A new paradigm for European growth

Mario’s vision for the future of Europe is ambitious but clear. Decline is not a comfortable fate, except for the privileged, but fortunately it is not inevitable: it is necessary to abandon the current model, based on low wages and external investment, and focus on strong domestic demand. This requires, first of all, a financial system capable of supporting innovation and business growth. The European banking system is not adequate to finance young technology companies, which often have volatile cash flows and intangible collateral.

Moreover, Europe’s lag in venture capital weighs heavily: ‘Europe’s share of global venture capital funds is only 5%, compared to 52% in the US,’ he says. To close this gap, it is necessary to create an innovation-friendly environment and adopt a tax regime that favours equity over debt.

The role of fiscal policy and structural reforms

In his speech, Draghi devotes much emphasis to the crucial issue of fiscal policies. The issuance of common European debt is the instrument to create fiscal space and support strategic investments. “If the EU were to issue a common safe asset, the cost of financing would be lower than growth rates, allowing additional debt of up to 15 per cent of GDP to be issued without burdening national budgets,” he explained, warning, however, that this solution would only work if accompanied by structural reforms capable of increasing Europe’s growth potential.

What reforms? The completion of the single market, first of all, the integration of capital markets, and greater coordination of fiscal policies between member states. Merely increasing public spending is not enough: “The composition of spending must change ,” Draghi argues, “ by focusing on increasing public investments and their effectiveness.

An existential challenge for Europe

The conclusion of the former ECB president’s speech is a warning in dramatic tones: ‘We do not have an immutable right to maintain our social model and values. We will have to fight to preserve them,’ he concluded, emphasising that what is at stake is nothing less than Europe’s ability to remain inclusive, secure, independent and sustainable. In short, the very social model of which we are so proud is at risk.

In short,the time to act is now: we have the resources and we have the talent to escape a gloomy fate. But will anyone read, understand and decide to make this second letter from Mario to the Europeans their own?