1. Europe’s declining competitiveness is Hungary’s priority as well as that of the Draghi Report
Presented last Monday, the report on European competitiveness by Mario Draghi aims to present competitiveness as a key issue the European Union currently faces – much like the Hungarian Presidency’s Programme did in the second half of June. The problem is that European competitiveness is not what it used to be, and on top of our competitors (China, or the US) overtaking us in this area, issues like the energy crisis, inflation, geopolitical instability, market fragmentation and the demographic crisis continue to prevent us from catching back up. If we do not correctly reorientate our priorities, the Union’s weight in the world economy will slowly erode, leading to a state where it will be highly vulnerable to crises, or others’ influence.
The vision of the Hungarian Presidency and the Draghi Report does align in many places, but there is a split in terms of proposed solutions to certain issues. Negotiations on the Capital Markets Union need to advance, the internal market needs to be strengthened to help resilience, connectivity, and to avoid further fragmentation. Harsh rules on limiting state subsidizing should be reconsidered (with the Commission sponsored document going as far as to perhaps allow fusions of big corporations or state subsidies for interregional projects). Furthermore, research and development (R&D) would need more funding to help innovative European companies stay in Europe. That said, there is a diverging approach on how to solve the issue of financing. While the Hungarian Presidency carefully mooted to advance talks on ‘New Own Resources’ of the Commission and to take incremental steps in the right direction, Mario Draghi suggests bigger and immediate economic packages, like the Next Generation EU (NGEU) was, financed by common debt. While some do consider the common debt-fuelled NGEU a success, it could present a danger to member states’ economy as well as sovereignty, and as hinted by the Hungarian programme (but clearly noted by the government itself), it should be avoided on the grounds of it merely treating symptoms but not the root causes. Such a tool could only ever be a short-term solution, but as one, it presents many issues.
2. A pragmatic trade policy is essential for European competitiveness, lest doctrinal protectionism or liberalism skew good decision-making
In order to produce the goods that European countries export, rare earth materials such as lithium, cobalt or tungsten need to be imported. Existing advanced technologies and innovation cannot do without them. These resources are to be found, among other places, in China. The latter is, however, typically viewed both as a danger and an opportunity for the European markets: a danger, because China’s aggressive trade policy does not follow a capitalistic logic, and their companies are heavily state subsidized; but also an opportunity, according to both documents, because Europe’s competitiveness drive could be fuelled by importing materials or even technologies from China. Additionally, in terms of trade, many other regions present similar opportunities. According to the programme of the Hungarian Presidency, the EU needs to build on its Central Asian strategy, as well as put more focus on the Indo-Pacific region in this regard. When it comes to the challenges and possible dangers, the EU needs to adopt a pragmatic trade policy, deciding on a case-by-case basis whether to be economically liberal, or protectionist. This approach could certainly put us on the right track to achieve the role of an independent and strong economic power on the world stage. Moreover, as the US could become an economic rival, the policy of economic neutrality is something that has to be considered, even if we want to see the Americans as our allies.
3. Draghi recognizes that migration cannot solve the demographic crisis—but the problem goes yet deeper
When talking to journalists on the event that unveiled his report, Draghi highlighted the demographic crisis as one of the greatest challenges that Europe faces – and admitted that migration does not even begin to remotely offset it. This is especially true when considering that third or fourth-generation migrants tend to have the same birthrate as natives. However, his document hardly deals with the core issues of, or real solutions to the demographic crisis, and fails to consider the negative sides of migration. The latter is essential to be considered, as the recent steps of Germany to expand border control measures on their borders (due to migration issues) endanger the Schengen area and hurt the internal market. In this aspect, dealing with both, the Hungarian Presidency’s Programme offers more comprehensive solutions. It emphasises that we would have to deal with migration more on our external borders as well as cooperate with origin countries. Additionally, it aims to build a toolbox for tackling the vital problem of aging population across the EU.
4. Bolstering European defence is crucial, but not by tying it to the prolongation of the war
Both the Draghi report and the Hungarian Presidency’s programme states that the EU must reinforce coordination in the defence industry and the Common Security and Defence Policy. However, the goals of each programme may be different. The Hungarian Presidency makes the point of empowering our industrial and technological base in defence through, for example, procurement cooperation or shoring up rapid deployment capabilities, in order to achieve more efficient crisis management, mostly for its own (Europe’s) sake. The report, in turn, goes more into detail on exploring the fragmentation of the different military-industrial bases of Europe, and recommends a variety of standardization practices. Nonetheless, one largely unsaid but still significant goal of the Commission is to shore up its defence industry in order to be able to more effectively support Ukraine. But, by tying European Defence to a foreign policy goal where the outcome is by far not only dependent on Europe (especially in its current state), the approach is a dangerous gamble. Should the war have an unfavourable outcome, decision makers latching on to the idea of strengthening defence for Ukraine may lose their drive in this policy area, due to the perception of failure, resetting progress in detaching Europe from the US in terms of security.
5. Deeper political integration is no long-term solution for the issues the EU has to face today
While the Hungarian Presidency’s Programme is careful to suggest approaches that fully respect each Member State’s sovereignty as well as enhancing the rule of law mechanism vis-à-vis between member states and EU institutions, by also involving the latter into it, Draghi’s report advocates to do away with veto powers in most policy areas for the sake of speed and effectiveness in decision making. This would be done through a generalization of the Qualified Majority Voting (QMV) in the Council. While speed may certainly be an important aspect, doing away with veto powers does not guarantee effectiveness, and the report ignores many problems that this may cause. First and foremost among them is that, because the EU already suffers from major democratic legitimacy issues, allowing the EU to generalize disregarding member states would result in a decision making body that in the end does not represent some of its citizens at all (with veto powers, there is an indirect representation through governments). But second, the current form of decision-making balances smaller member states’ influence against bigger member states’ influence by ensuring a more equal setting in the Council. Upsetting this balance would lead to stiff resistance by many member states protecting their sovereignty, with the proposal, in this form, embroiling the EU in internal fighting.
Written by Csaba Stefán & Ágnes Vass