Brussels (Belgium) (AFP) - Europe must massively ramp up investment including through joint borrowing as part of a “new industrial strategy” to keep pace with the United States and avoid dependence on China, a keenly awaited report warned Monday.

EU chief Ursula von der Leyen last year asked Mario Draghi, a former Italian premier and European Central Bank chief, to report back on how the 27-country bloc can increase competitivity amid rising global insecurity and economic challenges.

His report calls for additional yearly investment of at least 750-800 billion euros ($830-$885 billion), amounting to almost five percent of the EU’s gross domestic product.

Draghi acknowledged this would be “unprecedented”, representing a bigger boost than the post-World War II Marshall Plan to rebuild Europe, arguing that it was justified by an “existential challenge” facing the bloc.

“For the first time since the Cold War, we must genuinely fear for our self-preservation, and the reason for a unified response has never been so compelling,” Draghi told a press conference in Brussels to present his report.

Draghi’s blueprint for “radical change,” based around some 170 proposals, emphasises the need to close an “innovation gap” with both the United States and China.

It advocates “massive” investment to fund Europe’s priorities – from bolstering its defence industry to meeting ambitious decarbonisation targets – while avoiding a reliance on Chinese clean tech, through targeted support for parts of the sector.

It noted the EU’s weakness in the emerging technologies that will drive future growth, with only four European companies among the world’s top 50 tech firms.

“Europe must become a place where innovation flourishes,” Draghi said, saying the bloc was “punching under our power”.

“We lack focus on key priorities. We don’t combine our resources to generate scale. And we do not coordinate the policies that matter.”

For example, the report notes that the EU makes 12 types of tanks compared to only one in the United States, citing better harmonisation between EU states as one way to strengthen the industry.

“We could do much more if all these things were done as if we acted as a community,” Draghi said.

- Money, money, money -

Citing the EU’s historic Covid recovery fund, Draghi said the bloc should issue new “common debt instruments… to finance joint investment projects that will increase the EU’s competitiveness and security”.

The EU resorted to joint borrowing for an 800-billion-euro fund to support member states’ economies hit hard by the pandemic, but the concept remains controversial.

The idea’s biggest supporter is France, but other countries including Germany and the Netherlands oppose such action, fearing they will be forced to contribute disproportionately to other member states.

German Finance Minister Christian Lindner was quick to reject the idea. “Joint borrowing by the EU will not solve the structural problems,” he said.

Aware of the opposition to his proposal, Draghi said common loans would be possible only if “the political and institutional conditions are met”.

Another way, he said, was to better mobilise private capital in the bloc, advocating for progress on the long-stalled push for an EU “capital markets union”.

“The private sector will not be able to bear the lion’s share of financing investment without public-sector support,” the report said.

- ‘Wide gap’ between US, EU -

Von der Leyen, who won in July a second five-year term at the helm of the bloc’s executive arm, hopes to use the 400-page report to shape the priorities of her cabinet, known as a college of commissioners, which she is expected to unveil this week.

She did not directly address common borrowing during the press conference with Draghi, instead pointing to national contributions or other revenue sources that would go into the EU budget.

In his report, Draghi pointed to the “wide gap” in economic growth that has opened up between the EU and the US, “driven mainly by a more pronounced slowdown in productivity growth in Europe”.

With Europe’s economy largely stagnant since the end of the Covid pandemic, he warned that “China has been rapidly catching up”.

“If Europe cannot become more productive, we will be forced to choose,” the report said.

“We will not be able to become, at once, a leader in new technologies, a beacon of climate responsibility and an independent player on the world stage. We will not be able to finance our social model. We will have to scale back some, if not all, of our ambitions,” Draghi wrote.

“This is an existential challenge.”