Skip to main content
PGIM LogoPGIM Logo
    • Megatrends
    • Annual Best Ideas
    • OutFront Series
    • Quarterly Market Outlooks
    • Vantage Point Series
    • Market Events
    • Thought Leadership
    • Events & Webinars
    • Video Library
    • Podcasts
    • Investing in Alternatives
    • Risk Management
    • ESG Investing
    • Opportunities in EM
  • Alternatives

    • PGIM Private Alternatives
    • PGIM Private Capital
    • PGIM Real Estate
    • Montana Capital Partners (PE)

    Equity & Fixed Income

    • PGIM Fixed Income
    • Jennison Associates

    Solutions

    • PGIM DC Solutions
    • PGIM Multi-Asset Solutions
    • PGIM Quantitative Solutions

    Intermediary Distribution

    • PGIM Investments
    • Clients We Serve
    • Defined Contribution
    • Financial Advisors
    • Institutional Relationships
    • Global Locations
    • Contact Us
    • Overview
    • Leadership
    • History
    • Our Businesses
    • Diversity, Equity & Inclusion
    • Global Locations
    • Contact Us
    • Subscribe
    • Request for Information
    • Careers at PGIM
    • Job Opportunities
    • All News
    • Press Releases
    • In the News
    • Facts & Figures
    • Media Contacts
Europe Trade
Quick Take

Another “Whatever It Takes” moment for Europe?Another“WhateverItTakes”momentforEurope?

Oct 3, 2024

What is Mario Draghi's recipe to reboot Europe?

Share
  • Mail
  • LinkedIn
  • Twitter
  • Copy URL
  • Print

Share

In early September, Mario Draghi, the former Italian Prime Minister released a report that delivered a striking assessment of the European Union’s economic health and called for a multi-pronged approach to close its widening gap with its peers, notably the U.S. and China. 

A slow “agony” of decline is what Europe should expect if it does not get its act together to improve economic growth, according to Draghi. The 400-page report is unusually direct in its analysis and highlights multiple areas where Europe is falling behind.1 It was commissioned by European Commission President Ursula von der Leyen. 

They include areas ranging from the “tech transition” where Europe relies on other countries for over 80% of its digital products and services to gas prices which are three to five times compared to the U.S.

The policy blueprint on how the EU needs to change its approach has prompted analysts to draw parallels with Draghi’s “whatever it takes” speech in July 2012 during his term as the European Central Bank President, widely considered as the turning point of the sovereign debt crisis.

A key part of the agenda is about reducing regulatory burden. 

For example, the report recognises that while securitization markets have thrived in the U.S., Japan, Australia and other jurisdictions post-global financial crisis, these markets are nowhere in Europe. While the regulatory and supervisory approaches on securitization are very similar across the globe, the footprint in Europe has been much heavier in its application than in other jurisdictions. 

However, there seems to be political appetite to address this. 

Other key recommendations in the report include rethinking EU competition rules for strategic industries, move towards regular issuance of debt to enable joint investment projects, improving decision-making processes and developing a foreign economic policy in which defence instruments and partnerships are used more strategically. 

“A large focus of the Draghi report is to formulate an EU level industrial policy which is geared towards developing European industries for certain sectors compared to areas where there is no competitive advantage,” said Taggart Davis, Vice President, Government Affairs at EMEA. 

“He is essentially saying, let’s figure out the industries where it makes sense to throw our collective industrial and financing firepower rather than try to boil the ocean.”

To achieve these objectives, the report calls for a minimum annual investment of 750-800 billion euros corresponding to around 5% of EU GDP, reversing a multi-decade decline across most large European economies. 

This is unprecedented. For comparison, the additional investments provided by the Marshall Plan between 1948-51 to rebuild Europe amounted to around 1-2% of GDP annually. 

However, Draghi’s recommendations venture into politically sensitive territory and have already come under political criticism.2 For example, his proposals for more regular issuance of joint European debt have already run into opposition from Germany and other Member States who have traditionally opposed greater risk sharing at EU level.

But the EU’s need to jump start its struggling economy is more urgent than ever before. The region is entering the first period in its recent history in which growth will not be supported by rising populations with the report estimating that by 2040, the workforce is projected to shrink by close to 2 million workers each year. 

If the EU were to maintain its average productivity growth rate since 2015, it would only be enough to keep GDP constant until 2050 – at a time when the EU is facing a series of new investment needs that will have to be financed through higher growth.

Trade Policy Interventions on the Rise

Source: Global Trade Alert, 2024

A recurring theme of the report is to develop a strong foreign economic policy. Through strategic partnerships such as competition policy, foreign direct investment screening, procurement markets and regulatory measures, Europe can leverage access to its market by non-EU companies in a way that helps secure its priorities and combats unfair trade practices.

This would be linked with an industrial policy under which the EU would seek to protect nascent future-oriented industries and IP through measures such as requirements for joint ventures, and screening of outbound investment.  

This is in response to the broader observation by Draghi that the multilateral rules-based system which has served the global economy well for decades, is damaged, in decline, and increasingly less effective at protecting the EU from unfair competition with the region up against Chinese state-sponsored competition and the effects of the U.S. Inflation Reduction Act. As the report bluntly states: “The era of open global trade governed by multilateral institutions looks to be passing.”

“The name of the game is developing local markets and growth drivers even if that means shedding some of the globalist attitudes the EU had in the past, or at least supporting the multilateralist order, but ‘less naïvely’ than in the past,” said Davis. “It is like do we need investment restriction here or do we need a trade barrier there?”

Clear Beneficiary

Draghi’s report will be a huge positive for the EU if implemented. Fiscal spending will boost growth if it involves productive investments as markets will price that as a positive demand shock in the short term and a productive supply catalyst in the long term.

While the increased spending may potentially translate into higher interest rates as the central bank will likely lean against the positive demand impulse, risk markets will embrace the pro-growth features of the package. As a result, equity markets will likely trend higher, corporate spreads may tighten and the euro expected to gain.

“The currency is a clear beneficiary as it benefits from higher yields and stronger growth prospects,” said Guillermo Felices, global investment strategist at PGIM Fixed Income.

  1. European Commission. (2024, September) The future of European competitiveness: Report by Mario Draghi. Accessed September 2024
  2. Euractiv. (2024, September 18) Far-left, far-right MEPs slam Draghi report, while centre offers support. Accessed September 2024

The comments and opinions contained herein are based on and/or derived from publicly available information from sources that PGIM believes to be reliable. We do not guarantee the accuracy of such sources of information and have no obligation to provide updates or changes to these materials. This material is for informational purposes and sets forth our views as of the date of this article. The underlying assumptions and our views are subject to change.

Taggart Davis

Taggart Davis
VP of Government Affairs
PGIM

Guillermo Felices

Guillermo Felices
Global Investment Strategist
PGIM Fixed Income

You may also like

A Dutch Lesson on Redefining Retirement Solutions
Quick Take

A Dutch Lesson on Redefining Retirement Solutions

Apr 23, 2025

How are CIOs responding to the great DB to DC shift as the rest of Europe looks on?

Germany Releases Fiscal Brakes: A Strategic Shift
Quick Take

Germany Releases Fiscal Brakes: A Strategic Shift

Mar 24, 2025

Germany’s decision to relax its borrowing limits signals a seismic shift in its economic strategy, unlocking over €1 trillion in potential spending.

German Elections 2025
Quick Take

German Elections 2025

Feb 25, 2025

Germany is entering a pivotal moment in its political and economic landscape. Discover the strategic implications for investors after their recent election.

  • Insights

    • Megatrends
    • Annual Best Ideas
    • OutFront Series
    • Quarterly Market Outlooks
    • Market Events
    • Thought Leadership
    • Events & Webinars
    • Video Library
    • Podcasts
  • Investment Themes

    • ESG Investing
    • Investing in Alternatives
    • Investing in Emerging Markets
    • Risk Management
  • Our Businesses

    • PGIM DC Solutions
    • PGIM Fixed Income
    • PGIM Investments
    • PGIM Multi-Asset Solutions
    • PGIM Private Alternatives
    • PGIM Private Capital
    • PGIM Real Estate
    • Montana Capital Partners (PE)
    • PGIM Quantitative Solutions
    • Jennison Associates
  • Clients

    • Clients We Serve
    • Defined Contribution
    • Financial Advisors
    • Institutional Relationships
  • About

    • Overview
    • Leadership
    • History
    • Diversity, Equity & Inclusion
    • Global Locations
    • Contact Us
    • Subscribe
    • Request for Information
  • Careers

    • Careers at PGIM
    • Job Opportunities
  • Newsroom

    • All News
    • Press Releases
    • In The News
    • Facts & Figures
    • Media Contacts
PGIM Logo
  • Terms & Conditions
  • Privacy Center
  • Accessibility Help
  • UK Regulatory Disclosures
  • Netherlands Regulatory Disclosures
  • Canadian Regulatory Disclosures
  • Ireland Gender Pay Gap Report
  • Cookie Preference Center

For Professional Investors only.* All investments involve risk, including the possible loss of capital.

This material is for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation in respect of any products or services to any persons who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile or residence. PGIM is the principal asset management business of Prudential Financial, Inc. and a trading name of PGIM, Inc. and its global subsidiaries. PGIM, Inc. is a registered investment adviser with the U.S. Securities and Exchange Commission (“SEC”). Registration with the SEC does not imply a certain level of skill or training.

The information on this website is not intended as investment advice and is not a recommendation about managing or investing your retirement savings. In making the information available on this website, PGIM, Inc. and its affiliates are not acting as your fiduciary.    

In the United Kingdom, this website may be issued by PGIM Private Alternatives (UK) Limited or PGIM Private Capital Limited.  In the European Economic Area (“EEA”), this website may be issued by PGIM Private Capital (Ireland) Limited or PGIM Luxembourg S.A. or PGIM Real Estate Germany AG.

PGIM, Inc. has its headquarters at 655 Broad Street, Newark, NJ 07102. PGIM Private Capital (Ireland) Limited has its registered office at IDA Business Park, Letterkenny, Co. Donegal, F92 FP83, Ireland. PGIM Private Capital (Ireland) Limited is authorised and regulated by the Central Bank of Ireland and registered in Ireland under company number 635793 operating on the basis of a European passport. PGIM Limited and PGIM Private Alternatives (UK) Limited have their registered offices at Grand Buildings, 1-3 Strand, Trafalgar Square, London WC2N 5HR. PGIM Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) of the United Kingdom (Firm Reference Number: 193418). PGIM Private Alternatives (UK) Limited is authorised and regulated by the FCA of the United Kingdom (Firm Reference Number: 181389). PGIM Private Capital Limited has its registered address at 1 London Bridge, London SE1 9BG and is authorised and regulated by the FCA of the United Kingdom (Firm Reference Number: 172071). PGIM Luxembourg S.A., Netherlands Branch is registered with the Netherlands Chamber of Commerce under number 85998877 and has its local offices at Gustav Mahlerlaan 1212, 1088LA Amsterdam, The Netherlands. PGIM Luxembourg S.A. has its registered address at 2 Boulevard de la Foire, L-1528 Luxembourg and is authorised and regulated by the Commission de Surveillance du Secteur Financier (“CSSF”) in Luxembourg (registration number A00001218). PGIM Real Estate Germany AG has its registered address at Wittelsbacher Platz 1, 80333 Munchen, Germany and is authorised and regulated by Bundesanstalt für Finanzdienstleistungsaufsicht (“BaFin”) in Germany (registration number 10138142).

In Japan, information is provided by PGIM Japan Co., Ltd. (“PGIM Japan”) and/or PGIM Real Estate (Japan) Ltd. (“PGIMREJ”).  PGIM Japan, a registered Financial Instruments Business Operator with the Financial Services Agency of Japan offers various investment management services in Japan.  PGIMREJ is a Japanese real estate asset manager that is registered with the Kanto Local Finance Bureau of Japan.

In Hong Kong, information is provided by PGIM (Hong Kong) Limited, a regulated entity with the Securities & Futures Commission in Hong Kong to professional investors as defined in Section 1 of Part 1 of Schedule 1 of the Securities and Futures Ordinance (Cap. 571). In Singapore, information is issued by PGIM (Singapore) Pte. Ltd. (“PGIM Singapore”), a regulated entity with the Monetary Authority of Singapore under a Capital Markets Services License to conduct fund management and an exempt financial adviser. This material is issued by PGIM Singapore for the general information of “institutional investors” pursuant to Section 304 of the Securities and Futures Act 2001 of Singapore (the “SFA”) and “accredited investors” and other relevant persons in accordance with the conditions specified in Section 305 of the SFA. In South Korea, information is issued by PGIM, Inc., which is licensed to provide discretionary investment management services directly to South Korean qualified institutional investors on a cross-border basis.   

Prudential Financial, Inc. (“PFI”) of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. 

*PGIM.com/Podcasts and its content is intended for informational or educational purposes only and is not directed exclusively to Professional Investors. 

PGIM Logo
PGIM Logo

You are viewing this page in preview mode.

Edit Page