The Draghi report explained: what it proposes for European competitiveness

In September 2024 Mario Draghi, former president of the European Central Bank and former Italian prime minister, handed the European Commission The Future of European Competitiveness, the Draghi report: a strategy (Part A) and a sector-by-sector analysis (Part B). It opens week 5 of our programme, on growing through productivity, because it explains better than anything recent why Europe has fallen behind.

What Draghi diagnoses

The starting point is a number. The EU's growth has been slower than the US for two decades, and around 70% of the gap in GDP per head with the US, measured at purchasing power parity, is explained by lower productivity in the EU. Europeans save more than Americans, and their wealth has grown by only a third as much since 2009.

Draghi sets out three areas for action. The first, and the one he calls most important, is closing the innovation gap with the US and China, especially in advanced technologies. No EU company worth more than €100 billion has been built from scratch in the past fifty years. EU firms spent €270 billion less on research and innovation than their US counterparts in 2021. Europe has plenty of researchers and patents; ideas get stuck when they try to become companies, and the companies get stuck when they try to grow. Close to 30% of the unicorns founded in Europe between 2008 and 2021 moved their headquarters abroad, mostly to the US.

The second area is a joint plan for decarbonisation and competitiveness. EU companies pay electricity prices two to three times those in the US, and natural gas prices four to five times higher. Part of that is Europe's lack of natural resources, and part of it, the report says, is a market whose rules keep cheap clean power from reaching the bill. The third area is security and dependencies: a handful of suppliers, above all China, for critical raw materials; 75–90% of the world's wafer fabrication capacity for chips in Asia; a defence industry so fragmented that Europe operates twelve types of battle tank where the US produces one.

Behind it all, Draghi sees a Union that lacks focus, spreads its money thin and takes an average of 19 months to agree a new law.

What he proposes

The headline figure is investment. To meet its goals, the EU needs a minimum of €750 to €800 billion of extra investment a year, based on Commission estimates, which is 4.4–4.7% of EU GDP in 2023. The Marshall Plan was worth 1–2% of GDP.

Who pays is where the report gets interesting. Draghi wants the Capital Markets Union completed, so that Europe's large household savings flow into productive firms at home. He also says plainly that the private sector will not carry the lion's share without public support, and that some joint funding of European public goods, such as breakthrough innovation, will be necessary, and so, if the political conditions are met, will defence procurement and cross-border grids. The link between the two is productivity: the more the EU reforms itself and raises productivity, the more fiscal space it gains. A 2% rise in total factor productivity within ten years could cover up to a third of the public spending required.

The rest of the programme is about letting firms grow. Deepen the single market, which Draghi says has been left fragmented for decades. Cut the regulatory burden: more than 60% of EU companies see regulation as an obstacle to investment. Apply subsidiarity more rigorously, so the EU does fewer things and does them well, which is the decision rule we explained in what is subsidiarity. And adapt competition policy to scale: merger reviews should weigh a deal's effect on future innovation, and Important Projects of Common European Interest should cover all forms of innovation. Competition stays at the centre: the report calls the evidence that it drives productivity overwhelming.

What has happened since, and what it means for Spain

In January 2025 the Commission presented the Competitiveness Compass, whose three pillars follow Draghi's three areas. It adds horizontal enablers such as omnibus packages to cut red tape, a single market strategy and a savings and investments union, plus a 28th regime with an EU Inc company form, one set of rules for the whole Union. The Commission has set a target of cutting administrative burden by at least 25% for all businesses and 35% for SMEs. The first omnibus, on sustainability reporting, came in February 2025; by June 2026 there were twelve, and the Commission counts more than €22 billion in net annual savings from simplification between January 2025 and July 2026. At the one-year conference in September 2025, the Commission said 90% of the Compass flagship initiatives were directly inspired by Draghi and more than half had been delivered.

Draghi's own verdict that day was sharper. Europe, he said, was in a harder place than a year earlier. The ECB now put annual investment needs for 2025–31 at nearly €1,200 billion, with defence included. The 28th regime would probably start as little more than a digital business identity, the review of merger guidelines was set to take until 2027, and the main energy measure so far had been looser state aid rules. He called the slowness complacency and asked for "new speed, scale and intensity", including common debt for common projects.

For Spain, the report reads like a description of its own economy. The Banco de España's November 2025 analysis finds that Spanish firms average 8.8 employees against 12.1 in the EU. They are born the same size as European ones, about two employees, and five years later the EU average is 17 against 12 in Spain. Among the causes, the authors point to regulatory and administrative obstacles and to access to finance and talent. That is Draghi's diagnosis at national scale, and it is why productivity is the first problem in the speech by Democracia 21 we analysed in our overview.

Our position takes from the left the large common investment and joint industrial strategy: Europe should pool money for grids, research and defence. It takes from the liberal tradition the single market without barriers, simpler rules and firms allowed to grow, with competition doing the work. What joins them is a test that belongs to neither camp: judge every EU and Spanish rule by whether it lets a firm born in Spain grow into a European one. Common money goes where scale is impossible alone; rules are cut where they keep a firm in Valencia from selling, hiring and raising capital in Lyon or Munich as easily as at home. The gold cog in our picture is that small firm, and the whole European machine turns faster when it can grow.