The Draghi Report Turns One Today. Yet It Is Still More Crawling Than Walking.

At one year old, most babies begin to stand on their own feet. Some walk, others wobble, but all start exploring the world under their own strength. Today, the Draghi report turns one. Yet it remains largely in its crib – frequently cited, politely praised, but rarely acted upon.

Over the past year, Europe’s political leaders have cooed over Draghi’s proposals, showering them with affection. When the report was unveiled on September 9 last year, European Commission President Ursula von der Leyen hailed Draghi as uniquely suited to the task: “No one was better placed than you, dear Mario, to carry out a thorough analysis of Europe’s competitiveness – and of course how to improve it.” She then went on to promise that Draghi’s brainchild would be “at the top of our agenda, and at the heart of our action.” Macron, Meloni, and then-German Vice Chancellor Habeck followed with glowing endorsements. Even the Commission’s Competitiveness Compass, launched in January, echoes its structure and priorities.

But talk is cheap. The baby may be well-fed with praise, but it has yet to take its first steps. Despite symbolic gestures and strategic roadmaps, the gap between rhetoric and action remains wide. As Bruegel drily noted, the Compass appears to be “a low-cost version” of Draghi’s blueprint – stripped of boldness, softened for comfort.

At the heart of Draghi’s diagnosis lies precisely the EU’s long-standing productivity gap. There are many reasons for the gulf between the EU and the US, as well as other frontier economies, but one stands out in the report: Europe’s innovation and technology deficit. Since the mid‑1990s, Europe has failed to capture the productivity gains generated by the internet and the digital revolution. This, Draghi argues, is the core reason for the divergence.

None of this is new. As early as 2022, ECIPE sounded the alarm with its own Compass – well before the European Commission unveiled one – to guide EU policy in support of business competitiveness, at a time when Europe’s weakening performance on key indicators such as productivity growth was already evident. Similarly, in 2023 we issued a stark warning about Europe’s poor economic growth and its implications for prosperity by asking: what if the EU were a US state? The results were sobering: French GDP per capita was lower than that of Arkansas, the 48th state in America’s prosperity ranking.

The warnings did not stop there. In May 2024 – four months before the release of the Draghi report – we published a comprehensive study explaining why Europe’s productivity had fallen behind that of the US. Our conclusion was clear: Europe missed the innovation train during the digital revolution. In a subsequent paper in July 2024 – two months before Draghi – we argued that at the centre of this failure lay a chronic shortfall in R&D investment, particularly from the private sector. We also identified two further causes: weak financing for innovative firms and excessive regulation. All three appear prominently among the main determinants of Europe’s loss of competitiveness in the Draghi report as well.

Does this make us prophets? Hardly. What we – and many others – said has been evident to most experts for at least a decade, if not longer. Draghi’s merit lies in documenting these issues and presenting them in a far more authoritative and systematic way. The real question now is: in the first year since Draghi’s diagnosis, what has Europe actually done to close the productivity gap?

Let us take one issue at a time, starting with innovation spending. In 2000, the EU set itself the goal of raising R&D expenditure to 3 per cent of GDP. A quarter of a century later, spending still languishes at just 2.2 per cent. By comparison, South Korea invests almost 5 per cent, the US 3.6 per cent, Japan 3.4 per cent and China 2.6 per cent. According to the Compass, the Commission is to present a European Research Area Act in 2026 to strengthen R&D investment and finally meet the 3 per cent target. Two problems stand out. First, the 3 per cent goal is now outdated. To keep up with today’s pace of innovation – and to compensate for decades of underinvestment – our estimates at ECIPE suggest that EU R&D spending should quickly rise to at least 4 per cent of GDP, if not 5 per cent. Second, while we await the Commission’s proposal, the reality is that most of the heavy lifting will need to be done by Member States. Beyond coordinating joint projects, there is little the Commission can achieve on its own. For now, what is certain is that, over the past year, virtually nothing has been done to tackle this problem.

A second crucial factor behind the EU’s relative decline in productivity is the absence of a strong innovation‑financing ecosystem. Although Europe has abundant private savings, too much of this capital is parked in real estate or other safe, low‑yield assets rather than channelled into risk capital. This failure to mobilise Europe’s savings through deep and sophisticated capital markets leaves startups and high‑tech firms without the scale of funding they need to grow into global leaders, widening the gap with the US. To its credit, this is one area where the Commission has been more active over the past year. The proposed Savings and Investment Union, for instance, is an important step towards unlocking private savings and directing them into productive investment across the EU, precisely as Draghi recommended. Likewise, the EU Startup and Scaleup Strategy rightly highlights the need to foster a more supportive environment for a robust innovation ecosystem. Yet, as with R&D spending, the bulk of the effort lies with the Member States. EU‑level reforms can only go so far: real progress will depend on national policies such as revising tax incentives to steer savings towards riskier assets and expanding the role of pension funds, among other measures.

Lastly, another paramount factor behind the EU’s stagnating productivity has been overregulation. Draghi rightly stressed that Europe’s regulatory environment has become excessively complex, fragmented and slow, creating barriers to scale and deterring both foreign investment and innovation. He argued that unless this burden is streamlined and rules are applied more consistently across the Single Market, Europe will continue to fall behind more agile competitors such as the US and China. Over the past year, the Commission has indeed launched efforts to simplify rules in areas ranging from corporate sustainability to agricultural policy. Of particular interest for enhancing productivity is the 28th regime proposal, due in 2026, which would offer a single, simplified EU‑wide regulatory framework allowing innovative firms to scale across borders without having to navigate 27 separate national systems. For now, however, these initiatives remain at an early stage and the results to date are modest. Crucially, when one looks at the forthcoming legislative agenda – from the Digital Networks Act to the Quantum Act and the Advanced Materials Act – it is hard not to wonder whether this heralds a new wave of regulation rather than genuine simplification. Europe has set high expectations for its child. It’d better not keep tying its shoelaces together.

Productivity is not the only policy area where the gap between ambition and action is especially stark. Another one is industrial policy. The Draghi report emphatically calls for an expansion of industrial funding at the EU level, but firmly cautions against relaxing national State aid rules. State aid control, Draghi argues, is a foundational pillar of the EU, essential for preventing inefficient subsidy races among Member States and for safeguarding public resources. The experience of the COVID-19 crisis and the war in Ukraine has shown how unchecked national State aid can distort the internal market and fragment the EU economy. Since 2020, State aid has amounted to between 1 and 2.5 per cent of EU GDP each year, with wealthier countries able to spend far more than those with less fiscal room for manoeuvre. From the Draghi report, “returning to a normal enforcement of State aid controls serves to accompany the new industrial strategy characterised by strategically designed and coordinated policy actions.” His message is clear: less national State aid, more EU-level funding.

This is no endorsement of Draghi’s approach to industrial policy. At ECIPE, we have already shown that industrial policy tout court is no silver bullet for reviving a country’s competitiveness. Direct subsidies to firms are rarely the answer – and often a worse option than tax incentives or R&D-driven policies. Aside from potentially reducing fragmentation in the Single Market, there is little reason to believe that Draghi’s proposal – shifting State aid from the national to the EU level – would yield significantly better results.

More importantly, however, it is the Commission who appears far from embracing Draghi’s vision. Take the Clean Industrial Deal, presented in February this year. Rather than overhauling State aid, the plan further loosens existing rules to speed up approval of subsidies for renewable energy deployment. According to our estimates, national green subsidies to industry between 2014 and 2022 already exceeded EUR 600 billion – nearly double the projected cost of Biden’s Inflation Reduction Act for the 2023–2031 period. Framing the further relaxation of these rules as a bold new strategy is disingenuous. This is not parenting with discipline – it is caving in to bad habits. Europe is not guiding the child forward; it is indulging it with familiar comforts.

One could spend hours debating individual policy areas and how Europe’s actual progress compares with the prescriptions of the Draghi report. Yet the biggest gap between Draghi’s call and Europe’s response is one of timing. If there is one quality that both supporters and critics credited Draghi with, it was his ability to instil Europe with a sense of urgency in confronting the continent’s existential challenges. The message – that the time for EU action is now, if not yesterday – seemed, at the time, to resonate with policymakers. Or at least, that is what many publicly professed.

One year on, however, the prevailing sense is that Europe has slipped back into a mindset that assumes it has unlimited time to resolve its problems. Like a child’s first year, when growth should be rapid and milestones plentiful, Europe has instead temporised – as if it had all the time in the world before taking its first steps. Of the 176 policy proposals contained in the Draghi report, 105 were intended for short-term implementation – defined as within one to three years. Yet, a full year later, nearly all Commission initiatives remain at the proposal stage, far from tangible execution. The sluggish pace of progress has even led an otherwise composed Draghi to sound a rare note of urgency when addressing the European Parliament this February. “If we follow our usual legislative procedures, which often take up to 20 months, our policy responses may be outdated as soon as they are produced,” he warned bluntly. The recent heated debates over the expanded EU budget for 2028–2034 – still a relatively modest increase by the standards set in the Draghi report – offer further evidence that Europe continues to behave as if time were on its side.

But this is not just about money. The Elcano Royal Institute in Madrid produced an excellent analysis of the Draghi report back in December. Their findings revealed that 53 per cent of the proposed measures require no additional public investment. Many of these recommendations call primarily for regulatory reform rather than new spending.

The institute also found that only 5 per cent of the report’s proposals are both urgent and minimally viable. By contrast, most of the urgent recommendations are rated as having medium to high political viability – what Elcano aptly termed “quick wins.” This proves a critical point: Europe’s ability, or inability, to act is above all a matter of political will. Not every Draghi proposal is equally feasible – but many are, and many could be implemented swiftly if there were genuine determination to do so. This first year offers a sobering indication of Europe’s capacity to rise to the challenge. A baby that misses its early milestones can still catch up, but the longer the delay, the harder the road ahead. Europe simply cannot afford to waste these formative years.

Some people decide to have children in the hope that it will change them – that the responsibility, the future, the sense of purpose will force them to grow up, to become better. Even the worst of parents often believe that a child might redeem them. But that hope often proves illusory. Europe, in commissioning the Draghi report, seemed to make a similar bet: that confronting its own economic weaknesses on paper might finally trigger real transformation. “Business as usual is no longer an option,” declared the 27 EU leaders last November in Budapest. That hope, too, is proving fleeting.