EU must become a ‘genuine federation’ to avoid deindustrialisation and decline, Draghi says
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“Europe risks becoming subordinated, divided, and deindustrialised”, if it does not turn itself into a “genuine federation”, Former Italian Prime Minister and President of the European Central Bank Mario Draghi said in a speech at the Belgian Ku Leuven University on Monday.
According to Draghi, “power requires Europe to move from confederation to federation” because the global order is “now defunct”.
In his speech, delivered as he received an honorary degree from the university, Draghi painted a picture of a failed global order, tracing its decline to China’s joining the World Trade Organisation and Western countries beginning to trade with a state “with ambitions to become a separate pole itself”.
This, he said, set the stage for “the political backlash we now face” and ultimately produced “a world with less trade and weaker rules” – painful, but not a threat in itself.
“The threat is what replaces it”, Draghi said, pointing to a shift in the United States. “The US is imposing tariffs on Europe, threatening our territorial interests, and making clear, for the first time, that it sees European political fragmentation as serving its interests.”
On the other side, he said, China continues to control critical nodes in global supply chains and is willing to exploit that leverage by flooding markets, withholding critical inputs, and forcing others to bear the cost of its own imbalances.
“Pragmatic federalism”
Faced with the US’s efforts to combine partnership with dominance, and China sustaining its growth model by exporting its costs onto others, the EU must significantly change its structure, Draghi said, warning that “grouping together small countries does not automatically produce a powerful bloc”.
He argued that in areas where Europe has “federated” – trade, competition, the single market, monetary policy – it is “respected as a power and [can] negotiate as one”.
As evidence, he pointed to the “successful” trade agreements recently negotiated with India and Latin America.
“Where we have not – on defence, on industrial policy, on foreign affairs – we are treated as a loose assembly of middle-sized states, to be divided and dealt with accordingly”, Draghi said.
“A group of states that coordinates remains a group of states – each with a veto, each with a separate calculus, each vulnerable to being picked off one by one.”
He described his proposal as a “pragmatic federalism” that “breaks the impasse we face today without subordinating anyone”.
“Member states opt in. The door remains open to others, but not to those who would undermine common purpose. We do not have to sacrifice our values to achieve power”, Draghi said, mentioning the euro as “the most successful example”, with some EU countries starting and others joining at a later stage.
“Of all those now caught between the US and China, Europeans alone have the option to become a genuine power themselves. So we must decide: do we remain merely a large market, subject to the priorities of others? Or do we take the steps necessary to become one power?”
“A Europe that cannot defend its interests will not preserve its values for long.”
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