The WSJ on Mario Draghi’s Plan to Save Europe’s Economy

This will be short and bittersweet. The WSJ editorial board fails to address the heart of the matter.

How to Save Europe’s Economy

The Wall Street Journal says Mario Draghi has a Plan to Save Europe’s Economy, if anyone would actually read it.

Mario Draghi is trying, yet again, to save Europe’s economy and it would be nice if folks would actually read his plan. Instead the buzz surrounding Mr. Draghi’s new report on boosting European competitiveness helps explain why he needed to write it in the first place.

The former European Central Bank president and Italian Prime Minister on Monday published a nearly 400-page cri de coeur imploring politicians to arrest Europe’s worsening slump relative to America. The U.S. economy is now 30% larger than the European Union’s; it was 17% larger in 2002. By one measure, per capita output in Europe is 34% less than in the U.S.

Alas, Europe’s politicians and their media enablers are reading only the parts of Mr. Draghi’s opus that they want to. That’s why you’ve probably read that he proposes spending up to €800 billion annually on research and development, digitalization, climate goals and defense, among other things. This already is being interpreted as a call for more government “investment,” though Mr. Draghi is clear that this figure must include private capital alongside taxpayer money.

This selective reading also explains why commentators are trumpeting Mr. Draghi’s support for decarbonizing Europe’s economy and for new eurozone bond issuance. The latter is the sort of institutional tinkering Brussels loves to debate despite, or perhaps because of, the improbability of anything ever coming of it. Neither point is the core of Mr. Draghi’s case.

That core is that Europe needs to overhaul its approach to the private economy in order to keep pace with America, be able to afford greater spending on defense, and maintain its influence in world affairs. The Continent needs a growth strategy.

Entrepreneurs face too much red tape as they try to start businesses and bring new products and services to market. Tech companies must navigate around 100 tech-focused laws, Mr. Draghi notes, administered by 270 regulators spread across the EU’s headquarters and 27 national governments.

Yet no sooner had Mr. Draghi published his report than Europe’s political class proved it cares more about punishing America’s success than about emulating it. Witness Tuesday’s ruling from the European Court of Justice blessing Brussels’s move to impose €13 billion in extra taxation on Apple and levy a €2.42 billion antitrust fine on Google.

The unfortunate truth for Europe is that little of Mr. Draghi’s report is a surprise, even if he’s performed a valuable public service by putting it all in one place. Few of his suggestions will come to fruition until Europe’s politicians—and its voters—decide that gradual economic decline is unacceptable.

Five Things the WSJ Got Right

1. The U.S. economy is now 30% larger than the European Union’s; it was 17% larger in 2002. By one measure, per capita output in Europe is 34% less than in the U.S.
2. Draghi proposes spending up to €800 billion annually on research and development, digitalization, climate goals and defense, among other things.
3. Entrepreneurs face too much red tape as they try to start businesses and bring new products and services to market. Tech companies must navigate around 100 tech-focused laws, administered by 270 regulators spread across the EU’s headquarters and 27 national governments.
4. No sooner had Mr. Draghi published his report than Europe’s political class proved it cares more about punishing America’s success than about emulating it.
5. The unfortunate truth for Europe is that little of Mr. Draghi’s report is a surprise.

For starters, I did read the whole thing.

Second, I have been discussing the obvious flaws of the EU and EMU (Eurozone Monetary Union) for decades.

The Wall Street Journal editorial board failed to mention any root causes of EU demise other than regulation.

And the WSJ defends point number two without any discussion. Governments seldom spend money wisely. Investment must comer from private industry, but regulations are the issue.

Mario Draghi Proposes a “Vice President for Simplification”

Did the WSJ editorial board really read the entire report?

I mocked the proposal in my take Former ECB President Mario Draghi Proposes a “Vice President for Simplification”

One of my readers commented my response was too long. Here are the key points the WSJ failed to discuss and Mario Draghi went to great length to avoid.

• Draghi’s spending proposal are absolutely out of the question given EU budget rules.
• Draghi wants to increase the financing capacity of the banking sector and complete the Banking Union. This is in violation of the treaty all nations signed.
• Draghi praises the EU’s wealth redistribution schemes. How did the WSJ miss that?
• Draghi wants a stronger pension system without saying who will pay for it. That’s another miss for the WSJ.
• Draghi moans about EU’s decarbonization costs but supports them anyway.
• Draghi proposes a buyer’s cartel for LNG. What a hoot.

And Finally!

To start lowering the “stock” of regulation, the report recommends appointing a new Commission Vice President for Simplification to streamline the acquis, while adopting a single, clear methodology to quantify the cost of the new regulatory “flow”!

Vice President for Simplification

What a bleeping hoot! You could not possibly make this up.

The EU and EMU (Eurozone monetary union), are both broken beyond repair.

They cannot be repaired because it takes unanimous consent to make any changes to the treaty itself.

Draghi’s budget proposal is a nonstarter for budget reasons.

Heck, the EU bureaucracy is such that it will probably spend the next five years creating a “Vice President for Simplification”. And all it will do (at best), is come up with more rules, that some country will object to.

Treaty Change

In Draghi’s 69 page report, he mentioned the word “treaty” only four times. And everyone of those times was a futile attempt to get around the fact that a treaty change is required.

Q&A On the Fundamental Problem

Q: What’s Holding Back the EU?
A: The treaty itself.

Q: Why not change the treaty?
A: That would take unanimous approval. Every nation effectively has a veto and it it only takes one.

Q: What nations are the biggest obstacles?
A: Germany for fiscal rules and France for agricultural rules.

Q: What’s Germany’s role?
A: Germany only entered the EU and EMU if it had veto authority over a common budget and the German constitution prevents that as well.

Q: What is France’s role?
A: France wants to protect small, inefficient French farmers. It has veto authority over all agricultural policies except those explicitly allowed by the treat.

Q: What about trade negotiations?
A: Every nation has a veto over trade negotiations. This is why it took 15 years for the EU to agree to a seemingly simple treaty with Canada. And every nation that joins the EU has the same veto power.

Q: Why not modify the treaty to allow majority rule?
A: Germany says no on fiscal matters, France says no on agricultural matters, and any number of countries say no on trade related issues and military matters.

Is This Hopeless?

Yes, obviously.

The reason the EU does not have a Microsoft, Google, Amazon, Apple, or Facebook is the EU would break them apart in the name of creating competition before they ever got big.

And the EU is on the outside looking in for essentially the same reason, but also add DEI .

For a longer take, please see Former ECB President Mario Draghi Proposes a “Vice President for Simplification”

Finally, the whole idea of a “Vice President of Simplification” adding levels of bureaucracy to eliminate bureaucracy, without any power (by treaty) to change anything, speaks for itself.