According to analysts, the EU needs to accelerate development by increasing investment to promote innovation and green transformation.
In a 400-page report presented at the European Commission (EC) in Brussels, former President of the European Central Bank (ECB) Mario Draghi warned of stagnation and major difficulties in the EU economy.
He stressed that the EU needs to take strong measures to improve its productivity and economic growth, which are lagging behind the US and China. Meanwhile, the OECD’s Economic Outlook report warned that the German economy is falling behind among advanced industrial economies.
Analysis from the OECD report showed that major economies in the Eurozone, such as France, Italy and Spain, are performing better than Germany.
Accordingly, Germany remains one of the slowest-growing industrial countries, and its growth is expected to reach only 0.1% this year, lower than the 0.2% growth forecast by the OECD last May.
Among the major industrialised countries, only Japan trails behind Germany in GDP growth, which is predicted to shrink by 0.1%. Meanwhile, the economies of other major Eurozone countries are forecast to outperform Germany, with France, Italy and Spain, which are predicted to expand by 1.1%, 0.8% and 2.8%, respectively.
In the EU’s relatively gloomy economic picture, the bright spot is the possibility that the bloc will soon achieve its inflation target of 2%. ECB President Christine Lagarde expressed confidence that inflation will soon return to 2%, opening the possibility of a rate cut in October.
According to the news website Euractiv, Lagarde said recent price developments in the eurozone have reinforced the ECB’s confidence that inflation in the eurozone will return to 2% by the end of 2025.
Faced with the above situation, former ECB President Draghi said that the EU must invest an additional 800 billion EUR per year to overcome the current stagnation. This would be an unprecedented investment to help the EU take the lead in new technology and achieve many other important goals. Furthermore, the EU must focus on building leading innovation centres and developing clean technology.
Draghi also proposed adjusting competition rules to make it easier for the EC to approve mergers in the technology and defence sectors. At the same time, the EC should ease regulations on the telecommunications sector and support its expansion through an EU-wide market review.
Many ECB economists agree that bold reforms and massive investments are needed to get the European economy back on track. There has been growing consensus within the bloc that the 1.2 trillion euro (1.325 trillion USD) budget needs to be reformed, with proposals to redirect funds from poorer regions to policies that support industry, digitalisation and innovation.
However, analysts are not optimistic that the EU can soon implement measures to boost its economy, which requires cooperation and consensus from all governments in the bloc as well as support from industries and private investors. Recently, the EU has rarely found a common voice on its financial issues.
Another major challenge for the EU economy is the slow recovery of the global economy, growing strategic competition between major countries, and continuing armed conflicts in Eastern Europe and the Middle East.
