New Report Highlights Failures of Liberal Policies in Europe

A new report out this month from Mario Draghi, the former President of the European Central Bank and former Italian Prime Minister, highlights the shocking degree to which the European Union has fallen behind the United States and China economically. The report’s findings serve as a stark warning to Americans about the failures of liberal policies and excessive government involvement in the economy.

According to the report, Europe’s real GDP has fallen from 15 percent below that of the United States in 2002 to 30 percent below today. Meanwhile, real disposable income in the U.S. has grown at more than twice the pace as in Europe during that same time period.

Europe also now sees 70-80 percent less venture capital investment than the United States, and European businesses pay 2-3 times more for electricity and 4-5 times more for natural gas than American businesses. Unsurprisingly, the E.U.’s share of global trade in goods and services has declined precipitously over the past two decades.

“This is not the result of the U.S. taking advantage but rather the consequence of the E.U.’s inertia and indecision, which have persisted for at least two decades,” commented retired Economics Professor Helmut Baumgartner, former advisor to the German Christian Democratic Union party. “This must end quickly, or we risk losing freedom, and that is not hyperbole.”

In short, according to Draghi, the E.U. as a whole is in the midst of a severe economic decline – a decline that could soon become a disaster for the union’s 449.2 million citizens if drastic changes are not made.

The 77-year-old Draghi has himself witnessed enormous shifts in the European economy over the course of his life. Draghi’s father, an engineer who worked on energy projects, played a significant role in rebuilding the European economy after both world wars. This unique upbringing was coupled with a Jesuit education.

As Draghi once said, the Fathers ingrained in him the understanding that every human person is unique and valuable in the eyes of God, a belief that helped shape his perspective on the economy. Now, his desire to help resuscitate the European economy looks in some sense to be, as Baumgartner said, “rooted in the values of humanism—one can even say Christian humanism.”

Draghi is notably credited with “saving the Euro” during the 2012 debt and financial crisis. Under his leadership, the European Central Bank became the first major central bank to push one of its key interest rates into negative territory, along with offering three-year loans to banks at one percent interest. His efforts helped stabilize markets and ultimately the Euro.

However, Draghi’s most recent report suggests that Europe could be in even more danger now than it was then. Confidence in international trade deals is waning in Europe as state-sponsored manufacturing, primarily from China, undermines the integrity and sustainability of European industries. As just one example, over the past five years, the E.U. has lost 28 percent of its market share in wind turbines to China.

Draghi offers three main causes for Europe’s alarming economic situation, along with possible remedies.

The first recommendation he offers is that the E.U. establish better-integrated capital markets to encourage more innovation and investment. Many European innovators, he argues, start businesses in the United States because of the comparatively easy access to capital.

The second factor Draghi points to as a primary cause of Europe’s economic decline is a proliferation of regulatory red tape. The report finds that 60 percent of European companies label government regulations as a significant administrative burden and a major obstacle to investment and innovation. Meanwhile, the U.S. has minimal red tape by comparison, enabling quicker project approval and completion.

Finally, Draghi recommends scaling the continent’s power grid to cross national borders. His report presents evidence that the E.U.’s fragmented power grid structure has reduced reliability and raised costs for both consumers and businesses, making the continent less attractive for business investment than the United States.

For Americans, the Draghi report’s findings should be a harrowing insight into what the U.S. economy could look like under unchecked Democrat governance. Many of the policies now favored by Vice President Kamala Harris and her allies in Congress are strikingly similar to those implemented in the E.U. decades ago, from sky-high corporate tax rates to ever-expanding social welfare programs.

While the Draghi report offers some valuable insights, it also has some evident shortcomings in its proscriptions for E.U. leaders. For instance, the report evinces a preoccupation with so-called “green energy” policies that helped create Europe’s current energy crisis in the first place. Draghi recommends that a staggering five percent of the union’s GDP should be directed toward a “public green investment program.”

However, Draghi does outline a shift from a “Green Deal” to what he calls a competition-based “Industrial Deal,” which emphasizes the need for feasible and cost-effective energy projects.

As Milton Ezrati notes for The National Interest, “Draghi’s emphasis on government-run industrial policies” is also a “great weakness” of his recommendations.

“Like many academics and politicians,” Ezrati continues, “especially the European variety, Draghi seems to believe that technology and innovation will make greater strides under government support and guidance, but the centralized direction and focus implicit in this approach are, in fact, antithetical to innovation’s fundamental need for a diversity of effort.”

Nonetheless, Draghi’s analysis could serve as a major wake-up call to European leaders and perhaps start the continent toward a more sustainable, growth-oriented economic policy. Across the Atlantic, it might also serve as a reminder about why the European model isn’t as desirable as American liberals would have the public believe.

Ben Solis is the pen name of an international affairs journalist, historian, and researcher.