The “mission” of Mario Draghi and Enrico Letta to save Europe (from nationalism)

The future of the European Union’s economic policies could depend on two former Italian prime ministers. First Enrico Letta, then Mario Draghi will deliver two reports on the single market and competitiveness to the leaders of the 27 member states. In a nutshell, these are two packages of proposals that the former leader of the Democratic Party and the former governor of the ECB are drafting in close consultation with EU governments, businesses, experts and political groups. On the one hand, the rules that govern the bloc’s internal competition and which represent the fulcrum on which the construction of the EU was based. On the other, the challenge of an industry that has to deal with delays in strategic sectors compared to global competitors, in particular China and the United States.

The agreement

These tasks were assigned to them by Prime Minister Charles Michel (who appointed Letta) and Commission President Ursula von der Leyen (Draghi). Michel and von der Leyen’s cohabitation in Brussels was not without tension, to put it mildly. And several insiders had bet that the two reports would be a new battleground between the two EU leaders and their opposing visions on the future of the bloc. Consequently also causing an all-Italian competition between Letta and Draghi.

In reality, according to the previews and what was declared by the two former tenants of Palazzo Chigi, it seems that there is maximum harmony between the former leader of the Democratic Party and the former governor of the ECB. And perhaps there are also patriotic reasons to consolidate the long-distance agreement (which neither of them, given the role they hold, will clearly admit). Yet, the proposals on the table, according to advance reports, could bring new oxygen to economies suffocated by public debt such as that of the Bel Paese.

A European Wrath

For example, Letta’s report, presented at the EU summit in Brussels on 17 and 18 April, talks about the need to implement an Inflation Reduction Act (IRA) in the EU as on the model of the one launched by Joe Biden’s US administration. It is not an isolated idea: for some time several governments, including that of Rome, have been asking to continue along the path undertaken with the Recovery Fund, i.e. giving Brussels the task of grabbing resources on the capital markets with the issuance of Eurobonds (making debt), and redistribute this money to the States, in particular to those who find it more difficult to invest because they are committed to getting their accounts in order and respecting the Stability Pact.

The proposal, which is often relaunched in Brussels by another former Italian prime minister, the current EU Commissioner for the Economy Paolo Gentiloni, is clearly not liked by the frugal, starting with Germany. Which on the other hand has been accused in recent years of having used its state aid to give an advantage to its own companies to the detriment of competitors from the rest of the EU. According to Commission data from last September, of the 742 billion euros in public subsidies granted by various European governments, 48.4% concerned Germany alone. Then came France with 22.6% and Italy with 7.8%. The remaining 20 percent was spread across 24 countries.

Letta’s report aims precisely to intervene on these critical issues: the former prime minister proposes “a mechanism for contributing to state aid” at the European Union level. In other words, the idea is to create a fund fed by national budgets, clearly in proportion to everyone’s availability. Translated, he would like to say that Berlin should allocate part of public subsidies to the rest of the EU. This is what happened with the Recovery Fund, but this time with a mechanism that would become permanent.

Investments

Even Draghi, again according to the previews and his declarations, thinks that to guarantee the future of the bloc’s competitiveness it is necessary to focus on pooling as many resources as possible to promote investments. “Once the public goods (on which EU countries must focus and invest together) have been identified, ed), we must also give ourselves the tools to finance them – he began – The public sector has an important role and in the past I spoke about how we can better use the common debt capacity of the European Union, especially for defense where the fragmentation of spending reduces our total effectiveness. But a large part of the investment gap must be covered by private investments.” How? “The EU has a very high rate of private savings which are mostly channeled into bank deposits and do not finance growth as they should in a capital market bigger”, he explained. It is the same concept that is found in the draft report that Letta will deliver in these hours to the 27 EU leaders gathered at the Brussels summit: “The EU hosts as many as 33 trillion euros of private savings, mainly held in currency and deposits”, writes the former leader of the Democratic Party.

Looking outside the backyard

These proposals might seem excessively unbalanced towards the demands of countries like Italy, but both Letta and Draghi have made it clear that the time has come for Europe to look at external competitors, and not get lost in the tug-of-war in its own backyard . A direct message to Berlin, as to Paris: “In the EU there is a need for radical change, our investment rules are built on a world that no longer exists”, underlined Draghi. “We have looked inward, seeing our competitors as ourselves, even in sectors, such as defense and energy, in which we have deep common interests. At the same time, we have not looked outward.” And so the big competitors, who often play “without respecting the rules, activate divisive policies, do not play with the rules, design investment policies in their economies at the expense of others”, and all this “takes us by surprise”, he warned , with a clear reference to China.

The objective, writes Letta, must be to “make European industrial capacity compatible with the fair, green and digital transition”. To do this, says Draghi, we need to put in place a plan that favors “economies of scale”, that is, creating European and non-national companies capable of competing with global giants. The former ECB governor will deliver his report in June. Inside, as in the case of Letta’s report, the requests of the various EU countries will converge. The synthesis should however move along the lines mentioned above.

Whatever the outcome, the task of the two former Italian prime ministers is almost historic: to avoid Europe’s economic decline in the world. And save it, even before external competitors, from European nationalism. Some see, especially in Draghi’s work, a sort of political manifesto that could launch him towards the presidency of the Commission, or of the European Council. Who knows if the same doesn’t apply to Letta.