Why the EU economy gives Mario Draghi ‘nightmares’

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Good morning. News to start: Russia’s flagship LNG project is feeling the bite of western sanctions, as the first three shipments from the Arctic site have failed to find buyers, the FT has found.

Today, I report on Mario Draghi’s limited previews of his upcoming competitiveness report to EU officials yesterday, and our Paris correspondent reports on French President Emmanuel Macron struggling to pick his next prime minister, months after parliamentary elections.

What’s eating Mario Draghi?

Mario Draghi offered EU officials glimpses of his long-awaited dissection of Europe’s sagging competitiveness and remedies to fix it, but kept the details under wraps — save for warning that the potential future gave him “nightmares”.

Context: EU competitiveness relative to major rivals such as the US and China is falling. The Covid-19 pandemic supply shock, the energy crisis caused by Russia’s war against Ukraine and rapid technological advancements have exposed the EU economy’s flaws.

To fix things, European Commission president Ursula von der Leyen last autumn commissioned former Italian premier and ECB president Draghi to offer solutions.

The final, 400-odd page report is set to formally land on her desk next week, with its contents helping set policy goals for her incoming commission.

But in briefings to member state diplomats and political party chiefs in Brussels yesterday, the adroit statesman deftly trod a thin line between providing enough context to avoid any awkward surprises, and keeping all his actual proposals under wraps.

The report will tackle productivity, reducing external dependencies, climate change and social inclusion, and include specific prescriptions for 10 major sectors of the EU economy, people present in the meetings recounted.

Draghi told a parliamentary gathering that “some scenarios” of Europe’s economic future “gave him nightmares”, according to Manfred Weber, president of the European People’s party.

A key part of Draghi’s pitch was the scale of tough reforms necessary, noting that the Brussels machine would not be exempt from needed restructuring.

“There are structural brakes that prevent the EU from being able to unleash its full potential,” Draghi said, according to one person who stressed his demand for rapid “360-degree reform”.

“He spoke of reforms, both of the member states and of the [EU] institutions,” according to the person. “We need unprecedented reforms of all the actors of the EU.”

But when his interlocutors peppered him with questions about the report’s conclusions on state aid regulations, competition rules and the future of trade policy, the 77-year-old was sphinx-like.

“There was no substantial debate,” said a second person.

Chart du jour: Chinese middlemen

As the EU and US erect trade barriers against Chinese imports, mainland companies are increasingly incorporating subsidiaries in “connector” countries like Hungary, Ireland or Mexico to disguise their ownership and secure access to large free trade areas.

The embarrassment of choice

The Olympic summer in France is giving way to a new sport: a guessing game renewed every 24 hours. Is today the day President Emmanuel Macron names a new prime minister? asks Sarah White.

Context: Two months after a snap parliamentary election that plunged France’s lower house into deadlock, Macron is struggling to find a candidate to form a viable government with cross-party support. 

Always one to take his time, Macron’s hesitation is nonetheless starting to raise the spectre of a blocked situation. 

By last night, one name stood out: conservative politician Xavier Bertrand, a regional president from Les Républicains party.

But France’s lower house is so fractured that even with support from Les Républicains, Macron’s centrist block could be outvoted, and opposition from Marine Le Pen’s far-right Rassemblement National (RN) could scupper a Bertrand nomination. 

“He’s spineless,” RN politician Sébastien Chenu said yesterday in a swipe at Bertrand, who has beaten the far-right in its northern French fiefdom at regional level. 

Other suggestions such as former Socialist prime minister Bernard Cazeneuve, or the PM candidate put forward by a left-wing alliance, civil servant Lucie Castets, appear equally unviable. 

Though he can ultimately take more time — and is known for surprise manoeuvres — Macron has urgent issues to solve with a new government, such as steering a budget for 2025 to keep a grip on public finances.

He’ll also have to quell agitation among opponents directing their fire at him, and questioning his chances of making it to the end of his term in 2027.

What to watch today

1. Nato secretary-general Jens Stoltenberg visits Norway.

2. Italy’s Prime Minister Giorgia Meloni hosts Azerbaijan’s President Ilham Aliyev in Rome.

Now read these

• Hitting the brakes: Volvo has ditched its goal to sell only electric cars by 2030 amid a slowdown in demand for e-vehicles.

• Crisis of “a thousand cuts”: Germany is facing a drop in highly paid manufacturing jobs, pushing up unemployment.

• Next pandemic: The EU is not ‘fully prepared’ for the next health emergency and retains flaws exposed by the Covid-19 pandemic, its auditor has warned.