The former president of the European Central Bank (ECB) and former Italian prime minister, Mario Draghi, the “savior of the euro,” has issued a raft of recommendations to rejuvenate the European Union (EU)’s economies. His advice begins with a tally of how far Europe has fallen behind the United States and, to some extent, China. He is especially distressed by Europe’s lack of innovation. Most of his suggestions have value. Some have great value. His plan, however, emphasizes industrial policy as a route to increased innovation, which will impede rather than spur innovation in Europe.

Draghi’s report, entitled The Future of European Competitiveness, paints a bleak picture of the twenty-seven EU economies. It recounts that the size of the EU’s real gross domestic product (GDP) has fallen from just 15 percent below that of the United States in 2002 to fully 30 percent in 2023. Since the U.S. population has grown faster than Europe’s, the difference on a per-capita basis is somewhat narrower. Real disposable income in the United States has grown since 2000 at twice the pace of Europe’s.

The EU’s share of world trade in goods and services has declined significantly over the past twenty-some years, which is lost to China. European businesses, Draghi notes with considerable chagrin, pay 345 percent more for industrial gas than American businesses. Worker productivity in Europe (output per hour) has trailed that of the United States, accounting for his analysis estimates for some 72 percent of the per-capita income gap between the two regions. Europe sees 70-80 percent less venture capital investment than the United States, while overall rates of capital investment have lagged considerably, suggesting that Europe needs to increase its rate by five percentage points of GDP to start catching up.

Draghi puts forward a wide range of remedies to address these shortfalls. They range from suggestions to increase the union’s trade competitiveness to suggestions on how Europe can narrow what he calls the “skills gap” of its workforce, referring not to the difference between the skills of European workers and those in the United States or China but rather........

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