WARSAW, Sept. 8 (Xinhua) -- Two years after former European Central Bank President Mario Draghi presented his report on the future of European competitiveness on Sept. 9, 2024, implementation of its recommendations has slowed.
The European Policy Innovation Council's July index showed that 15.7 percent of the 383 recommendations have been fully implemented, while 41.3 percent have been fully or partially implemented. These figures rose by 3.9 and 7.5 percentage points respectively between September 2025 and January 2026, but by only 0.6 and 2.4 points in the following six months.
Europe now faces new challenges on three fronts: energy costs, strategic financing and industrial scale-up.
ENERGY SHOCK RETURNS
The latest Middle East conflict has once again exposed Europe's vulnerability to high energy costs.
Euro area annual inflation is expected to be 3.3 percent in August, up from 2.9 percent in July, according to a flash estimate from Eurostat. In June, the European Central Bank raised its key interest rates by 25 basis points, citing inflationary pressures from the war.
Energy costs are also weighing on trade. The European Union (EU) recorded a 21.8-billion-euro (about 25.2 billion U.S. dollars) goods trade deficit in the second quarter of 2026, its first since the second quarter of 2023. The deficit in energy products widened from 71.3 billion euros (about 82.9 billion dollars) to 101.1 billion euros (about 117.6 billion dollars) and was the main reason the overall balance turned negative.
The International Monetary Fund (IMF) estimated that higher energy prices will reduce euro area growth by 0.5 percentage points in 2026 and 0.2 percentage points in 2027. Private investment was also projected to decelerate because of higher input costs and protracted uncertainty.
MORE CLAIMS ON LIMITED CAPITAL
The Draghi report estimated that meeting its objectives would require an additional 750 billion to 800 billion euros (about 872 billion to 930 billion dollars) in investment each year.
Two years on, that financing challenge has grown, as defense spending rises sharply across the continent.
The European Defense Agency expects defense spending by the EU's 27 members to reach 454 billion euros (about 528 billion dollars) in 2026, or 2.4 percent of GDP, up 36 billion euros (about 41.9 billion dollars) from last year.
The European Central Bank (ECB) estimated annual public funding requirements for defense, and the green and digital transitions, at around 510 billion euros (about 593 billion dollars), at a time when fiscal space is limited in many member states.
The Organization for Economic Cooperation and Development (OECD) said the economic effects of higher defense spending are uncertain. Resource competition can push up prices and crowd out private activity, while maintaining debt sustainability may require higher taxes or cuts to other public spending.
The challenge is therefore no longer simply to invest more, but to finance security, energy, digitalization and infrastructure simultaneously without weakening growth elsewhere.
THE SCALE-UP CHALLENGE
Europe's third challenge is turning innovation into scale. In emerging industries such as artificial intelligence (AI), success increasingly depends not only on technology, but also on capital, infrastructure and access to a large market.
ECB research published in August put the total size of U.S. venture capital funds at about 930 billion euros (about 1081 billion dollars), around six times the EU's 150 billion euros (about 174 billion dollars). The ECB also pointed out that Europe's venture capital challenge goes beyond aggregate scale.
Market fragmentation makes scaling harder. The European Commission said firms still face 27 national legal systems and more than 60 company legal forms in place, which can make setting up and expanding businesses slower and more costly.
The Center for European Policy Studies (CEPS) argued that regulatory simplification alone is not enough, with market fragmentation and lack of scale posing more fundamental barriers to global competition.
The infrastructure demands of emerging industries such as AI are also growing. The European Commission says Europe faces a critical deficit in large-scale computing infrastructure. Therefore, the EU is mobilizing 20 billion euros (about 23 billion dollars) for AI gigafactories to expand computing capacity.
Two years after the Draghi report, Europe's competitiveness agenda faces a tougher setting: energy costs have returned as an immediate constraint, strategic demands on capital have multiplied, and technological competition increasingly rewards complete industrial ecosystems. The reforms remain relevant, but the conditions for delivering them have become more demanding. ■