The EU is Dragging Its Feet on Draghi’s Reforms

September 30th, 2025
Daniel Song

On September 9th, 2024, former European Central Bank president and former Italian Prime Minister Mario Draghi published his report titled “The Future of European Competitiveness,” calling for the European Union to take action in closing the innovation gap with the United States, linking decarbonization with economic competitiveness and boosting European economic security by reducing dependencies on the United States, China, Russia and other foreign countries. Draghi’s report argues that an additional €750-€800 billion annual investment is needed to accomplish these goals.

One year later, Europe has made significant strides in implementing Draghi’s recommendations, but it has also fallen short in major areas. In January 2025, the European Commission introduced its competitiveness compass, which aims to implement Draghi’s recommendations. Already, there have been substantial results, with €200 billion for investment in AI, €150 billion in defense funding thanks via the SAFE initiative, more than €100 billion for the Clean Industrial Deal to focus on green energy and growth and €8.4 billion in savings for businesses due regulatory simplification. Yet, beneath the flashy headlines, most recommendations have stalled. The European Policy Innovation Council calculated that only 11.2% of Draghi’s 383 recommendations have been fully implemented, with another 20.2% in progress.

For example, one of the key issues raised in the Draghi report is Europe’s high energy prices, which are more than double that of the US. High energy prices raise costs for consumers, businesses, and hamper investment and manufacturing. In response, Draghi proposed leveraging Europe’s market power by jointly purchasing gas from international gas markets, integrating European energy markets and securing long-term purchasing arrangements that provide revenue stability for energy producers and price certainty for buyers or governments to reduce energy price volatility. In its Affordable Energy Action Plan, published February 2025, the European Commission endorsed the idea of long-term purchasing arrangements, but implementation has stalled.

A critical factor for why Draghi’s recommendations have failed to be implemented is resistance from EU member states. As Austrian MEP Anna Stürgkh explained, many individual countries do not want to share cheap energy with their neighbors, hampering a unified European grid. On the issue of joint EU debt—where the European Union instead of member countries issues bonds to pay for defense, industrial, or R&D investment—wealthy countries like Germany and the Netherlands, with cheap borrowing costs, have vetoed the plans because they don’t want to pay more in interest for the EU-level bonds. Germany has also continued to focus on its industry-heavy export economy by offering large power subsidies, further undermining the EU’s internal market with price distortions. Even more critical, despite claiming to have a “single market” allowing for the easy exchange of goods and services, the EU’s market is severely hampered by internal trade barriers put up by countries, who are unwilling to remove them due to domestic political concerns. In fact, the IMF found that the EU’s internal trade barriers amount to a 44% tariff on goods and 110% for services.

Specifically, EU countries put up market barriers in three ways: interpretation of EU directives, ignoring European legislation, and resisting authority transfer to the European level. For example, EU directives, which are approved at the EU-level but interpreted into national law by member countries, are often carried out differently that prevent equal treatment for multinational businesses. The second issue is that countries may ignore or even flout European legislation, as enforcement by the European Commission is often slow and weak. Italy and Hungary, for example, have 65 and 135 violations, respectively. The third way of maintaining barriers is to resist the transfer of competences from the national to the European level. Further, Italian authorities are likely to succeed at forcing a takeover of a major Italian bank despite European officials favoring a more competitive European-based banking sector instead of national ones.

But ultimately, the most significant area where Draghi’s plans will fall short is the EU’s budget. The EU Commission’s proposed budget created a €409 billion fund to finance Europe's industrial revival, but national capitals have already pushed back against the major cuts to farmers' subsidies and poorer regions needed to finance these investments. Already, 14 countries have announced their opposition to the Commission’s budget.

Simply put, even as Europe’s challenges have “grown more acute,” European countries have failed to meet the moment with unity and instead continued to focus on national interests. If the EU wants to maintain its geopolitical and economic strength, it must heed calls for reform.

Extemp Question: How should the European Commission garner national support to successfully implement the Draghi report?