Europe must equip itself with new rules that allow it to deal with common shocks rather than, as happened in the past, individual crises. Word of the former Italian prime minister and former president of the ECB, Mario Draghi, who participated in the Martin Feldstein Lecture of the NBER (National Bureau of Economic Research). Compared to the past, he highlighted, «the nature of the shocks we are facing is changing. With the pandemic, the energy crisis and the war in Ukraine, we are increasingly faced with common, imported shocks rather than asymmetric, domestically created shocks. This shifts the problem from supporting struggling states to addressing shared challenges, thus creating a different alignment of political preferences. If the degree of convergence within the euro area is higher, the frequency of asymmetric shocks is lower and the common financing of shared goals increases, the rarer it will become when a fiscal capacity is really needed. Draghi stressed, «rules are needed that facilitate the massive investment needs that we need. And we need to ensure the medium-term credibility of national fiscal policies in a context of very high post-pandemic debt levels.
In the same way – highlighted Draghi – Europe has never faced, up to now, so many shared supranational objectives, objectives that cannot be managed by countries acting alone. We are going through a series of major changes that will require huge joint investments. The European Commission estimates the investment needs for the green transition at over €600 billion a year until 2030, and between a quarter and a fifth of this will need to be financed by the public sector. We are also facing a geopolitical transition, driven by the US-China decoupling, in which we can no longer rely on hostile countries for critical supplies. This will require a substantial reorientation of investment towards capacity building at home or with partners. And never in the history of the EU have its founding values of peace, democracy and freedom been so questioned as since the war in Ukraine».
“An immediate consequence is that we need to make a transition to a much stronger common European defense if we are to, at the very least, reach NATO’s military spending target of 2% of GDP,” noted the former prime minister.
