Op Ed by the High Representative/Vice President Josep Borrell: the Draghi report and Europe's geopolitical future

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Op-Ed by the High Representative/Vice-President Josep Borrell: the Draghi report and Europe's geopolitical future

26.09.2024 Josep Borrell, High Representative of the European Union for Foreign Affairs and Security Policy / Vice-President of the European Commission

Geopolitique.eu - First of all, our sincere gratitude goes to Mario Draghi and his team for the quality and exhaustive scope of their report: the information they gathered paints a striking picture of the qualitative leap the Union urgently needs to make if it is to overcome the many challenges it faces.

The diagnosis is clear: Europe is facing a major technological deficit in a very difficult geopolitical context. The remedy lies in a massive and sustained increase in investment. It was essential to explain this situation to the people of Europe and to their leaders, while at the same time presenting them with solutions for overcoming it.

The Draghi report highlights three major challenges for Europe: the need to accelerate innovation and find new drivers of growth; the need to lower energy prices while continuing to decarbonize our economy; and the need to respond to a more unstable world where Europe can no longer rely on others to guarantee its security.

The two latter challenges have been particularly highlighted by Russia's invasion of Ukraine. But we have known for a long time that we have a deficit of innovation. As early as 2000, the Lisbon Strategy set out to make the European Union "the most competitive and dynamic knowledge-based economy in the world" by 2010. Despite this ambitious statement, a quarter of a century later, the gap has continued to widen between us and the United States, and is now widening in relation to China.

In 2010, the Monti report on the single market also stressed the need to simplify European regulations to create a simpler, less restrictive framework for businesses. Yet, fifteen years on, the Draghi report shows that the situation has not improved.

Mario Draghi did not mince his words on this matter when presenting his report: "For the most part, we have done all we can to limit innovation". We urgently need to take action. To meet the challenges facing the Union, we need to shatter new taboos, as we did when we jointly borrowed €750 billion to deal with the Covid-19 pandemic, and as we did when we decided to provide military aid to Ukraine, to support its fight for survival.

To meet the challenges facing the Union, we need to shatter new taboos.

Josep Borrell

In particular, greater integration will be required in key areas such as taxation, notably to finance the Union's budget and support its issuance of debt, foreign policy, and defence. To achieve this, it will be inevitable to amend the Treaties.

Integrating these three areas into Community competencies will be particularly complex as they represent the core of national sovereignty, but when the current treaty was approved in the early 2000s, the world was a very different place than it is today.

Amending the Treaty may seem unrealistic. But not doing so would be equally so. It will be very difficult for the Union to survive if it adheres solely to the Treaties as they stand today, as Mario Draghi has repeatedly made clear.

The debate surrounding this report has so far focused largely on the question of whether or not to create a joint debt of the Union's member states to finance the massive increase in investment that Mario Draghi is recommending. Unsurprisingly, this proposal has been met with strong resistance. Some were even quick to dismiss the Draghi report as dead on arrival because the idea had been rejected by political leaders in Germany and other countries, as well as by the President of the Commission.

Mario Draghi must not have been surprised by these reactions. His report prudently advised that the proposal to issue joint debt should only be pursued "insofar as political and institutional conditions allow". Indeed, it could not be otherwise.

Despite this, it seems to me that this report will have a lasting impact on the Union's agenda. That's why we need to engage in an in-depth debate on the many proposals it contains, to identify the most urgent ones and how they can be effectively implemented. We also must highlight those that are still not fully developed and consider them as a starting point for more in-depth discussions.

As High Representative of the Union for Foreign Affairs and Security Policy, I would like to contribute to this debate on two specific subjects: the geo-economic dimension of the Union's foreign policy, and the institutional framework for coordinating the Common Security and Defence Policy and support for the defence industry.

Amending the Treaty may seem unrealistic. But not doing so would be equally so.

Josep Borrell

Invest more in Europe and better protect our economy - without forgetting the rest of the world

In a world where all interdependencies have become weapons - weaponization of dependencies as we say in our jargon - the question of "economic security" has become a central element of any foreign policy. In his report, Mario Draghi stresses the need for the Union to develop a true "foreign economic policy", and to coordinate "preferential trade agreements and direct investments with resource-rich countries, the building up of stocks in certain critical areas, and the creation of industrial partnerships to secure the supply chain for key resources".

I agree. The siloed approach we have seen all too often up to now - with the European Union's trade policy on one side and its foreign and security policy on the other - has become wholly ill-adapted to the geopolitical context in which we now find ourselves.

However, apart from the phrase "foreign economic policy" - the President of the Commission also uses a similar expression - the Draghi report does not put forward any specific proposals for overcoming the dualistic approach that has often paralyzed us in this area.

Prior to the Draghi report, however, the Lisbon Treaty had already sought to resolve this problem. It distinguishes between two areas: international economic relations, such as trade and development aid, fall within the Union's area of competence - trade is said to be exclusive, even if it requires the agreement of a qualified majority of member states - while other areas of external action fall under the intergovernmental framework of the Common Foreign and Security Policy, with its own specific actors and procedures.

Under the Lisbon Treaty, the HR/VP was to play a key role in integrating these two dimensions of foreign policy. In addition to chairing the Council of Ministers for Foreign Affairs, Defence and Development Aid, he or she was to also chair the Council of Ministers responsible for the Union's foreign trade. But for several years now, this provision has not been applied.

The siloed approach we have seen all too often up to now - with the European Union's trade policy on one side and its foreign and security policy on the other - has become wholly ill-adapted.

Josep Borrell

In June 2023, we approved a joint communication with the Commission on economic security 1 . This was a first step towards meeting the challenges posed by this new paradigm. But our Achilles' heel remains governance: clarifying who should do what and how, between the intergovernmental dimension of foreign policy and Community competencies and instruments.

The Lisbon Treaty provided for the inter-institutional coordination Mario Draghi is calling for, by entrusting the HR/VP with the function of linking the actions of the Council and those of the Commission in the field of foreign economic policy. The present geopolitical context suggests that such coordination would be even more necessary, but I fear we're heading in the opposite direction.

The Draghi report also acknowledges that we have been overly naïve in the past, placing too much faith in free trade and opening up the Union to goods and capital. This observation has been shared for several years within the Union. During the term of office which is now drawing to a close, significant measures have been taken to correct the situation, whether in the fight against dumping 2 and excessive public subsidies 3 , or controlling foreign investment 4 in Europe.

The Draghi report proposes going much further still in terms of industrial policy, support for European innovation, and protection of European producers by equipping us with new instruments and devoting a great deal of additional financial resources to them.

Admittedly, the measures we have already taken are still insufficient given how far we have fallen behind in many key areas and the increasingly aggressive practices of some of our competitors, not only China. But we must be careful to ensure that the measures we take in terms of economic security and industrial policy do not have unwanted - and undesirable - geopolitical effects.

Given that the Union has gone too far in opening up its economy, there is a risk that public opinion and European leaders will be tempted to let the pendulum swing too far in the other direction - and that we will alienate partners with whom, conversely, we urgently need to strengthen our ties. This applies in particular to the countries around the Mediterranean and in sub-Saharan Africa, as well as those in Latin America and South and South-East Asia.

We must be careful to ensure that the measures we take in terms of economic security and industrial policy do not have unwanted - and undesirable - geopolitical effects.

Josep Borrell

This risk is real. In 2023, for example, we adopted a directive against imported deforestation 5 . I naturally share the spirit and objectives of this law. But we have to admit that it has created significant difficulties in our relations with important partners such as Brazil, Indonesia and the countries of West Africa. It is important that all the measures we take in terms of economic diplomacy are precisely calibrated, discussed beforehand with our partners, and gradually implemented to enable them to adjust to these changes.

It would be a major geopolitical risk for the Union if the majority of the countries of what is now called the Global South were to become hostile to us. This risk has recently been compounded by what has been perceived as a "double standard" in our reaction to Russian aggression against Ukraine and the war in Gaza. We have already seen the potentially disastrous effects of this in the Sahel. Our legitimate desire to strengthen our industrial policy and better ensure our economic security should not exacerbate such a risk of geopolitical isolation.

Furthermore, the most important conclusion of the Draghi report is that, in order to catch up technologically, Europe would need to invest around 800 billion euros more each year in private and public money - equivalent to 5% of European GDP. This is an ambitious target that will be very difficult to achieve.

The report stresses that this will only be possible if sufficient public money is made available to trigger momentum in private investment. But releasing the corresponding public funds at the European level means increasing national contributions or the Union's own resources, and/or issuing joint debt. If no agreement is reached on this issue, there is a risk that this major internal investment effort will be to the detriment of European public and private investment outside the Union. This would ultimately undermine our geopolitical position.

If we cannot increase Europe's contribution to the global financing of the fight against climate change, we risk jeopardizing the already fragile Paris Agreement process.

Josep Borrell

For example, the Union must of course do its part to tackle climate change. Hopefully, the Green Deal will be fully implemented by the new Commission. However, the most important factor at play here is not in Europe, but in emerging and developing countries. These countries will only fully commit to the green transition and adapting to climate change if the developed countries - which have historically been responsible for this phenomenon - provide them with sufficient support. They tell us this over and over again at every COP.

If we cannot increase Europe's contribution to the global financing of the fight against climate change 6 , we risk jeopardizing the already fragile Paris Agreement process and alienating many of the countries most threatened by climate change. At the same time, climate change itself constitutes one of the main geopolitical threats for us in terms of instability at our borders.

Similarly, as a result of Covid-19 and the war in Ukraine, many countries in the South, mainly in sub-Saharan Africa 7 , are once again experiencing serious debt problems. Even if this excessive indebtedness today most often concerns China, Europe cannot refuse to do its part to resolve it.

In addition, China has dramatically expanded its geopolitical position, particularly in Africa and Latin America, by providing massive financial support for infrastructure construction through the "New Silk Roads" 8 . In 2021, we decided to respond with the Global Gateway Initiative 9 . However, the additional funding we can realistically mobilize remains very limited. We cannot neglect these issues in our relations with these countries.

Finally, the Draghi report reminds us that we need to reduce our excessive dependence on certain trading partners. At the same time, we need to develop our economic ties with other regions of the world. This is essential if we are to access the critical raw materials needed for the energy and digital transitions.

It is crucial that we avoid reverting to an "extractivist" approach. We need to establish balanced partnerships with our partners, and help them build real industrial sectors to add domestic value to the raw materials they have.

In other words, overcoming our technological deficit, boosting our autonomy in the fields of digital technology and renewable energies, and ensuring the survival of our social model, means not only investing more in Europe, but also becoming more engaged abroad if we are to limit climate change and avoid allowing China and Russia to have free rein in the countries of the "Global South".

It is crucial that we avoid reverting to an "extractivist" approach.

Josep Borrell

Strengthening our military capabilities and defence industry requires an appropriate institutional framework

I largely agree with the Draghi report's diagnosis of the issues facing the defence industry. However, I have my doubts about the appropriateness of some of the recommendations, for both political and institutional reasons.

In a geopolitical context shaped by the war launched by Russia near our borders, by other flashpoints of tension in our vicinity, and by great uncertainty about future American involvement in European security, we must prioritize - as part of the massive investment effort recommended by Mario Draghi - the strengthening of our defence capabilities and our defence industry.

Despite a significant increase, especially since February 2022, our investments in these areas remain insufficient, inefficient and fragmented. We still have a long way to go if we are to replenish our armed forces' stocks, support Ukraine at the level it needs, and prepare for the future by designing and developing tomorrow's equipment.

Indeed, our defence industry is not able to keep up with the increase in our military spending. According to the report, since the start of the war against Ukraine, 78% of the equipment used by Europe's armed forces has been purchased outside the Union. Moreover, we cooperate far too little in this area; only 18% of orders for our armed forces are placed in a coordinated fashion in Europe.

This situation compromises our ability to act as a power on the international stage. Over the past five years, we have issued numerous warnings on this matter, notably in the Strategic Compass 10 , a kind of white paper on European defence, published in March 2022, and in the annual reports of the European Defence Agency 11 .

We undeniably need a much more active European defence industry policy. This would also have a major positive impact on other industrial sectors of the future, such as microelectronics, artificial intelligence, etc., as the USA has been showing us for decades.

The Draghi report places particular emphasis on the need for consolidation among firms in the sector. And he's right. Europe will only be able to build a sufficiently powerful defence industry if we succeed in overcoming current fragmentation.

In order to develop Defence Europe, we first need to clarify the roles of the Commission and the member states.

Josep Borrell

However, this is much easier said than done, as there are still strong national sensibilities at play here. In my opinion, the Draghi report did not take the particularities of the military equipment market sufficiently into account. We will never be able to achieve a true single market for military equipment until we have a much stronger political union.

In order to develop Defence Europe, we first need to clarify the roles of the Commission and the member states. According to Article 4 of the Treaty on European Union 12 , individual states remain solely responsible for their own national security. But the Treaty also establishes that they can act together through the Common Security and Defence Policy.

To this end, the Treaty provides for the creation of a European Defence Agency 13 , an institution that is mentioned only in passing in the Draghi report, even though its already significant role could be increased to develop more military research projects, encourage companies to join forces, and better coordinate the procurement of equipment for European armies. Sometimes, we ask for the creation of new organizations while forgetting those that already exist…

The other way to build Defence Europe is to use the Commission's competencies and the European budget, together with the European Defence Fund 14 and other industrial policy instruments developed during this legislature. In particular, this will be the task of the new Defence Commissioner, who is not actually a real Defence Commissioner in the full sense of the term, but rather a Commissioner in charge of the defence industry, just as Commissioner Breton was in his wider portfolio.

To succeed, we need to closely coordinate these two crucial approaches: respecting the sovereignty of individual states while encouraging them to cooperate more closely on an intergovernmental basis within the PESCO 15 framework created by the Lisbon Treaty, and, at the same time, mobilizing the European budget to support the European defence industry and encourage it to combine forces. At the same time, we need to better coordinate demand on the military side and provide greater supply-side support to industry.

This close coordination between the Community and intergovernmental levels is essential if we are to build the Defence Union that President Juncker 16 began talking about in 2017, and which President von der Leyen wants to make one of her primary objectives 17 .

Sometimes, we ask for the creation of new organizations while forgetting those that already exist…

Josep Borrell

Where do we draw the line between industrial policy in the defence sector and defence policy? Could the military capabilities of European armies be financed in part by the EU budget? Could the European Union buy and own military equipment, as envisioned under the new Military Equipment Sales Mechanism 18 proposed under EDIP 19 and modeled on the US Foreign Military Sales Program? Or could it develop defence capabilities through a "European Defence Union" project to deal with shared, cross-border threats to the Union's security, as suggested by the European Air Shield project? Is the center of gravity of such a project defence policy or industrial policy? What becomes of the role of existing intergovernmental defence cooperation instruments such as PESCO 20 ?

Could the supply security scheme described in the EDIP 21 proposal, which would enable the Commission to order companies to give priority to defence over civilian supplies in times of crisis, be activated via the Community method? Given the current state of the Treaties, all this seems difficult to imagine.

It seems to me, however, that these crucial institutional and legal issues have not been sufficiently addressed in the Draghi report, unlike, for example, the radical and specific proposals made in the area of competition policy. I'm not saying that we shouldn't plan to adopt measures such as those mentioned above, but it seems difficult to believe that they can fall entirely within the scope of "industrial policy" - which is the only way the Treaties currently allow the Commission to play a role in defence matters.

The HR/VP in charge of Foreign Affairs and Security could and should play a major role in this process because there will only be a true union in the field of defence if the member states responsible for it are strongly involved. Industry - the Commission's entry point in terms of competencies in this vast field of European defence - is of course important, but it is far from the whole story. Nor can it be the decisive approach in political terms: the defence industry is a tool at the service of the Union's security policy.

Where do we draw the line between industrial policy in the defence sector and defence policy?

Josep Borrell

The second issue is the size of the industrial players. The Draghi report repeatedly refers to the need for a new competition policy that no longer prevents Europe from building global players. Defence is one of the first sectors where such a philosophy could be applied, given its particular value to the Union's security.

The third issue concerns financing investment in the defence industry. The Draghi report points to very substantial funding needs, but does not provide much information on how to meet them, in the defence sector as elsewhere.

When it comes to defence, we must first and most urgently remove regulatory obstacles to the private financing of these industries. But private funding alone will not suffice. Must we wait until the next multi-year financial framework 22 has been adopted and the Union has been endowed with new own resources 23 before supporting the defence industry at the European level? Or should we pre-empt this effort by issuing European debt now, as we did in 2020 in response to the Covid-19 pandemic?

If the aggressive imperialism of Vladimir Putin's Russia was truly seen as an existential threat for the Union, as was the case with Covid-19, the choice of joint debt would be made quickly. It would be legitimate and in accordance with the Treaty to resort to issuing joint debt to finance a massive additional military effort in support of Ukraine in order to force Putin to sit at the negotiating table. Indeed, there is reason to fear that the absence of such massive and rapid European funding could cause us to fall irremediably behind in the face of the Russian war machine, which is linked to that of Iran and North Korea…

If the aggressive imperialism of Vladimir Putin's Russia was truly seen as an existential risk for the Union, as was the case with Covid-19, the choice of joint debt would be made quickly.

Josep Borrell

On the other hand, when it comes to equipping the armies of member states that have so far made little effort to develop their defence capabilities, issuing joint debt to make up for this lag would raise a morally uncertain issue. Many member states would be unwilling to take on such a collective debt.

In conclusion, the European public debate needed the "straight talk" of the Draghi report. All that remains now is to ensure that the message is actually heard and to clarify certain recommendations - as well as to ensure that the Union's new leaders translate them into decisions that are equal to the stakes.