Let's face it: The report on Europe's competitiveness and future submitted by Mario Draghi to the European Commission is a step in the right direction. The former ECB president says Europe needs to make €800 billion of additional investments per year in the future – the equivalent of 5% of the European Union's (EU) GDP – or around three times the Marshall Plan (between 1% and 2% of GDP in annual investments in the post-war period). This would enable the continent to return to the investment levels of the 1960s and 1970s. To achieve this, the report proposes recourse to EU borrowing, as was done with the €750 billion recovery plan adopted in 2020 to cope with Covid-19. Except that the aim now is to raise such sums each year for sustained investment in the future (particularly in research and new technologies), and not to fund an exceptional response to a pandemic. If Europe proves incapable of making these investments, then the continent will enter a "slow agony" in the face of the United States and China, the report warns.
One may disagree with Draghi on several key points, not least of which is the precise composition of the investment in question. Nevertheless, this report has the immense merit of challenging the dogma of fiscal austerity. According to some, in Germany but also in France, European countries should repent for their past deficits and enter a long phase of primary surpluses in their public accounts, in other words, a phase in which taxpayers should pay much more in taxes than they receive in expenditure, to urgently repay the interest on the debt and the principal.
The savings windfall
In reality, this austerity dogma is based on economic nonsense. Firstly, because real interest rates (net of inflation) have fallen to historically extremely low levels in Europe and the US over the last 20 years: Less than 1% or 2%, and sometimes even negative levels. This reflects a situation where there is a huge windfall of little-used or misused savings in Europe and worldwide, ready to pour into Western financial systems with virtually no yield. In such a situation, it is the role of public authorities to mobilize these sums and invest them in training, healthcare, research and new technologies, major energy and transport infrastructures, thermal renovation of buildings, and so on.
As for the level of public debt, it is indeed very high, but not unprecedented. It is close to that observed in France in 1789 (around one year's national income), and significantly lower than that seen in the United Kingdom after the Napoleonic Wars and in the 19th century (two years' national income) and in all Western countries after the two World Wars (between two and three years).
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