Europe at the Crossroads - Part II The Draghi Report: Europe’s Last Chance?

Published: 5 August 2026

When Mario Draghi published his landmark report on European competitiveness, its significance lay not in discovering new problems. Europe’s industrial decline, high energy costs, fragmented capital markets and slowing innovation had already been debated for years.

Draghi did something far more important.

He assembled the evidence into a single, coherent diagnosis and presented European leaders with an unavoidable conclusion: unless Europe fundamentally changes the way it competes, its relative economic decline will accelerate.

Few disputed the diagnosis. Almost everyone praised the report. Yet nearly two years later, remarkably little has changed.

Recent assessments in Brussels suggest that only around 15.7 per cent of the report’s 383 recommendations have been fully implemented. Almost 60 per cent have yet to see meaningful legislative action.

The obvious question is why.

The answer is uncomfortable. Europe’s greatest challenge is no longer understanding the problems it faces. It is acquiring the institutional capacity to solve them.

For much of its history, the European Union was designed to prevent conflict rather than maximise economic speed.

· Consensus was considered a virtue.

· National sovereignty remained largely intact.

· Compromise became the operating principle.

That institutional design served Europe remarkably well during an era of expanding globalisation, relatively predictable geopolitics and steadily growing international trade.

Today’s world is very different. Economic competition increasingly resembles strategic competition.

· Industrial policy has returned.

· Governments openly subsidise strategic industries.

· Supply chains have become geopolitical assets.

· Critical minerals have become instruments of national power.

· Artificial intelligence, robotics and semiconductors are now viewed as strategic infrastructure rather than ordinary commercial products.

· Speed increasingly matters as much as policy.

And this is where Europe’s institutional architecture begins to show its limitations.

The European Union possesses one of the world’s largest integrated markets. It does not possess a single integrated government. Major economic initiatives still require agreement among twenty-seven sovereign member states, each with different economic priorities, political pressures and electoral cycles.

· Germany worries about protecting export industries.

· France often favours stronger industrial intervention.

· Southern Europe seeks greater fiscal flexibility.

· Eastern member states place greater emphasis on sovereignty and security.

Every government arrives at the negotiating table carrying its own domestic political realities.

The result is predictable. Europe frequently reaches agreement on objectives. It struggles to agree on execution.

The Draghi Report recognised this problem directly. Its recommendations extended far beyond industrial policy. They implicitly required member states to pool considerably more economic sovereignty.

· Common borrowing.

· Greater financial integration.

· Faster decision-making.

· Significant investment in shared European infrastructure.

In practical terms, this would require governments to surrender powers that national electorates have historically been reluctant to transfer to Brussels.

This is the paradox confronting Europe. Its economy increasingly requires continental-scale solutions. Its politics remain overwhelmingly national.

The disappointing implementation record should therefore surprise no one. The recommendations attracting the greatest political support are those requiring relatively modest institutional change.

· Reducing administrative burdens.

· Updating industrial legislation.

· Strengthening digital infrastructure.

· Improving research coordination.

These are important reforms. But they do not fundamentally alter Europe’s competitive position. The more ambitious proposals tell a different story.

· Joint borrowing remains politically contentious.

· Completing the Capital Markets Union continues to progress slowly.

· Large-scale fiscal integration encounters resistance from governments unwilling to assume shared financial liabilities.

· Institutional reform remains politically sensitive.

Europe has therefore adopted what might be called a strategy of selective implementation. It has embraced the recommendations that fit comfortably within its existing governance model. It has largely postponed those requiring structural political change.

None of this suggests that democratic consensus is undesirable. Democratic legitimacy remains one of Europe’s greatest strengths.

The question is whether existing institutional processes remain fit for an era characterised by technological disruption, strategic industrial competition and rapidly changing geopolitical realities.

• China can mobilise enormous financial resources within months.

• The United States can deploy large-scale industrial subsidies through federal legislation.

Europe often spends years negotiating frameworks before implementation even begins. This is not simply a difference in political culture. It is a difference in institutional capability. Execution has become an increasingly important source of competitive advantage.

For much of the twentieth century, economic strength depended upon labour, capital and natural resources. Those factors remain important. But a fourth factor has quietly become just as significant.

Institutional execution.

· The ability to recognise emerging challenges.

· To make timely decisions.

· To mobilise investment.

· To coordinate public and private capital.

· To build infrastructure before competitors do.

· To transform strategic intent into practical outcomes.

In an era of accelerating technological change, governing capability has become an economic resource in its own right.

This is perhaps the most important lesson contained within the Draghi Report. Europe’s challenge is no longer primarily economic. It is institutional.

The temptation in Brussels will be to continue refining legislation, updating regulations and producing increasingly sophisticated policy frameworks.

These remain necessary. They are not sufficient. No continent has ever regulated itself into industrial leadership.

Competitive advantage ultimately rests upon productive capacity, affordable energy, investment, innovation and the ability to execute strategy at scale.

Europe already understands this. The question is whether its current institutional structure allows it to act upon that understanding.

That debate can no longer be postponed.

The Draghi Report may ultimately be remembered in one of two very different ways.

It may become the document that triggered Europe’s industrial renewal.

Or it may become the report that accurately diagnosed Europe’s decline while demonstrating the limits of its political system.

The difference will not be determined by economics alone. It will be determined by governance. Because understanding a problem is only the first step. Nations ultimately succeed—or fail—according to their ability to act.

Part III: Can Europe Become an Industrial Power Again? From Defensive Regulation to Economic Offensive.

Leon Vermeulen is an independent historian and commentator specialising in European memory, conflict, reconciliation and social cohesion.