- Draghi outlines massive €750-800bn annual investment to close gap between EU, US and China.
- Key proposals include reforming EU R&D funding, easing regulation.
European Union leader Mario Draghi, known for saving the Euro, has now set his sights on rescuing Europe’s faltering tech sector. In a landmark report presented to the European Parliament, the former European Central Bank chief delivered a stark warning: the EU is falling dangerously behind in the global innovation race.
Draghi’s ambitious roadmap, commissioned by European Commission President Ursula von der Leyen, outlines a sweeping strategy to close the widening economic gap with the US and fend off China’s technological ascent. The message is clear: without urgent action, Europe risks becoming ‘less prosperous, less equal, less secure’.
The innovation deficit: Europe’s alarming tech gap
The report, ‘The future of European competitiveness’, paints a sobering picture of Europe’s current position. Only four of the world’s top 50 tech companies are European, and the EU’s share of global tech revenues has dropped from 22% to 18% in the past decade, while the US share rose from 30% to 38%. Perhaps most alarmingly, no EU company valued over €100 billion has been founded from scratch in the past 50 years.
This statistic stands in sharp contrast to the US, where all six companies with valuations above €1 trillion were created during this period. The report argues that this lack of industrial dynamism is self-perpetuating, with EU companies specialising in mature technologies with limited breakthrough potential.
Draghi argues that the innovation deficit threatens not just Europe’s prosperity but also its core values and way of life. “If Europe can no longer deliver these values for its people, it will have lost its reason for being,” he told MEPs in Strasbourg [PDF].
The consequences of the innovation lag extends far beyond the tech sector. He warned that Europe’s levels of production growth have slowed significantly, with labour productivity in the EU falling from 95% of US levels in 1995 to below 80% today. With an ageing population set to shrink the workforce by nearly two million workers annually by 2040, productivity gains will be crucial for maintaining economic growth and funding Europe’s social model.
“The challenges Europe faces are complex and, as such, they present us with difficult choices. But they are choices we must confront,” Draghi told MEPs, underscoring the existential nature of the challenge.
Draghi’s roadmap: Massive investment and radical reform
To reverse course, the report calls for a massive increase in investment, estimating the EU needs to boost spending by €750-800 billion annually – equivalent to 4.4 to 4.7% of EU GDP. This would amount to more than double the scale of the post-World War II Marshall Plan, reflecting Europe’s challenges.
Central to Draghi’s vision is reforming how the bloc approaches research and innovation funding, proposing to double the budget of the EU’s main R&D programmeme to €200 billion, refocusing it on ‘disruptive innovation’ and commonly agreed priorities.
Perhaps Draghi’s most radical suggestion is that the EU create an innovation agency modelled on the American Defense Advanced Research Projects Agency (DARPA) to support high-risk, high-reward research. The report also recommends sweeping changes that make it easier for innovative startups to scale up in Europe.
“The problem is not that Europe lacks ideas or ambition. We have many talented researchers and entrepreneurs filing patents. But innovation is blocked at the next stage: we fail to translate innovation into commercialisation,” Draghi said. He admitted how inconsistent and restrictive regulations hinder innovative companies that want to grow.
“As a result, many European entrepreneurs prefer to seek financing from US venture capitalists and scale up in the US market,” he added. For context, between 2008 and 2021, close to 30% of the “unicorns” founded in Europe – startups that went on to be valued at over US$1 billion – relocated their headquarters abroad, with the vast majority moving to the US.
Draghi said a new EU-wide legal statute for ‘Innovative European Companies’ would give qualifying firms a single digital identity that would be valid across the bloc, with harmonised rules on issues like corporate law and taxation. This would reduce the regulatory complexity that often drives European entrepreneurs to relocate.
Between 2008 and 2021, close to 30% of European ‘unicorns’ – startups valued at over $1 billion – relocated their headquarters abroad, primarily to the US. Separately, on technology infrastructure, the report proposes leveraging the EU’s existing network of high-performance computers to lower the cost of AI deployment for European firms.
It also recommends facilitating consolidation in the telecom sector to boost investment in 5G and fibre networks, noting that Europe’s fragmented market has led to lower per capita investment compared to other major economies.
Draghi argues that the EU must take a more strategic approach to trade and industrial policy, particularly in clean energy technologies, where Europe risks falling behind China despite the continent’s innovativation and potential. Local content requirements and joint ventures were recommended to maintain European technological sovereignty in strategic sectors.
Draghi proposes that the EU continue issuing common debt instruments to finance this ambitious agenda, building on the NextGenerationEU recovery fund model. This would help fund joint investment projects and foster deeper integration of European capital markets.
Critically, the report calls for streamlining EU decision-making to enable faster action on strategic priorities. It recommends using qualified majority voting more frequently in the Council and allowing ‘enhanced cooperation’ among subgroups of member states when EU-wide agreement proves elusive.
Draghi also aims to address the EU’s growing regulatory burden, which he argues stifles innovation. The report calls for appointing a new Commission Vice President for Simplification to streamline existing rules and commits to cutting reporting requirements for small and medium enterprises by up to 50%.
The former ECB chief framed the report’s proposals as an urgent necessity in a world of rising geopolitical tensions and accelerating technological change. “Europe faces a choice between paralysis, exit or integration,” he warned MEPs. “Exit [from the EU] has been tried and has not delivered what its proponents hoped. Paralysis is becoming untenable as we slide towards greater anxiety and insecurity.”
While Draghi’s report offers a comprehensive blueprint for boosting EU competitiveness, implementing its recommendations would require overcoming long-standing political and institutional hurdles. National governments remain wary of ceding more power to Brussels, particularly on fiscal matters. The EU’s complex decision-making processes often favour incremental change over bold action.
Nevertheless, the report has injected fresh urgency into debates about Europe’s economic future. With the US and China racing ahead in critical technologies like artificial intelligence, Europe’s leaders face mounting pressure to respond. Draghi’s stark warning – that without major reforms, Europe risks “inexorably” becoming “less prosperous, less equal, less secure” – may galvanise support for more ambitious EU-level action.
As the European Parliament and member states digest the report’s findings, all eyes especially will be on Commission President von der Leyen and her team. Their response to Draghi’s proposals could shape the EU’s economic trajectory for years to come – and determine whether Europe can regain its footing in the global tech race.
