The future of European competitiveness: key takeaways of the Draghi report
The future of European competitiveness report – also known as the Draghi report – explores strategic actions to boost growth in the European Union (EU). The report proposes focusing on four objectives:
- Boosting innovation, particularly in high technology
- Adopting a new industrial strategy, combining multiple policies (tax, trade, and foreign policy) and reforming competition law to facilitate mergers of European corporations
- Financing investment, in particular by reducing the fragmentation of capital markets, finalising the banking union and relaunching securitisation
- Reforming decision-making by reducing regulatory flow and simplifying implementations
Context of the Draghi report
In 2023, the European Commission (EC) appointed Mario Draghi to report on the future of Europe’s competitiveness. Mario Draghi has been president of the European Central Bank, Prime Minister of Italy, Chairman of the Financial Stability Board and the Governor of the Bank of Italy. His report was published in September 2024.
The EC also requested a report on the future of the EU’s single market, written by Enrico Letta and published in April 2024. “Much more than a market” calls for modernising the single market to deliver a sustainable future and prosperity for all EU citizens.
The Noyer report (former governor of the Banque De France) was published in April 2024. The aim was to issue concrete proposals to relaunch the Capital Markets Union (CMU) by focusing on financial stability, with greater integration of financial markets.
The Draghi report is a continuation of these reports whilst including a broader reflection on EU’s competitiveness and resilience.
It highlights that EU productivity is falling further behind the US and improving slower than many Asian markets, in particular China. Furthermore, the digital, social and sustainable transition of the EU economy will require investment of circa EUR 800 billion per annum, for which Draghi proposes to issue common debt at EU level. In about 400 pages, the report proposes 170 recommendations that Ursula von der Leyen’s second Commission intends to transform into an ambitious development plan.
Draghi report: main recommendations for the CMU
The main recommendations for improving the CMU and financial services in the EU as well as channelling household savings to productive investments are:
- Reduce capital market fragmentation
- European Securities Market Authority (ESMA) should transition from coordinating national regulators into being a single common regulator for all EU security markets. To this end, ESMA should be entrusted with exclusive supervision over large multinational issuers, major regulated trading platforms and central counterparties (CCPs).
- Harmonise the insolvency framework and remove taxation obstacles to cross-border investments
- Foster centralisation of clearing and settlement with the creation of a single CCP and a single central securities depositary (CSD) for all markets
- Increasing the financing capacity of the banking sector by reviving the securitisation market
- Set up a securitisation platform to deepen the market, especially if backed by public guarantees for the first-loss tranche
- Review the transparency and due diligence rules
- Adjust prudential requirements for securitised assets (e.g. reduction of capital requirement for certain Simple Transparent and Standardised (STS) Securitisation)
- Finalising the banking union
- The EU should assess the prudential regulation framework (whether further changes to Solvency II capital requirements are necessary or the current prudential framework is adequate considering the possible upcoming implementation of Basel III)
- Set up a separate jurisdiction for EU banks with substantial cross-border operations that would be “country blind” from regulatory, supervisory and crisis management viewpoints
- Strengthening governance and simplifying rules
- The EU Council’s votes should be, more often, subject to qualified majority voting
- Reduce the regulatory flow by appointing a new Commission Vice President for Simplification. The report also suggests a 25% cut to reporting obligations and a commitment to a further 50% reduction for small and medium-sized enterprises, upholding proportionality for SMEs in EU law and extending it to small mid-caps.
The President of the new European Commission, Ursula Von der Leyen, has confirmed the establishment of a task force to turn several measures of the report into concrete proposals and potential legislation. The nature, composition and objectives of the working group has yet to be clarified but the ambition of the new EC and EU co-legislators should be to move fast and significantly to restore EU competitiveness.