For such an expansive diagnosis of the EU’s challenges, it’s perhaps little surprise that Mario Draghi’s 328-page report, “The future of European competitiveness”, received a mixed reaction. 

“Much of what he calls for is desirable,” wrote The Economist. “This is a step in the right direction,” added Thomas Piketty.

Europe’s centrist politicians were equally supportive; their counterparts outside the middle ground less so. Manon Aubry, co-chair of the Left group in the European Parliament, criticized Draghi’s focus on “deregulation and private sector incentives, [which] signals more of the same outdated EU economic dogma”.

Members of the European Parliament (MEPs) on the far right – along with German Chancellor Olaf Scholz – rejected the Italian’s call for joint sovereign debt to boost investment.

Reforms of competition enforcement central to Draghi’s vision

In Draghi’s view, Europe’s competitive disadvantages stem from three factors. First, that it has fallen behind the U.S. in technological innovation. Second, that its efforts to decarbonize have come at the expense of economic growth. And third, that the absence of an EU “foreign economic policy” has left it weakened in a treacherous geopolitical environment, lacking strong ties to resource-rich nations capable of supplying the materials it needs to support high-tech businesses.

One of the more controversial sections in Draghi’s report deals with the impact of antitrust enforcement on the ability of European companies to compete in global markets. The European Commission has long viewed mergers as potentially harmful to innovation (and therefore consumers), and has either sought remedies from parties or blocked transactions that it believes have the potential to reduce R&D. Indeed, in recent years there has been an intense focus on tackling so-called “killer acquisitions”, whereby bigger companies look to buy smaller innovators before they can grow into genuine competitors.

Draghi, however, takes a somewhat different view, acknowledging that “big is not always bad” – particularly where the relevant markets are global, characterized by data and network effects, and where innovation is key. Working from the assumption that European businesses are simply not big enough to compete in some sectors – particularly tech – he recommends taking a longer-term view that would tilt the playing field in favor of M&A in these strategic sectors.

‘Innovation defense’ to boost dealmaking

Under Draghi's plan, parties would be able to invoke an “innovation defense” to justify deals that might otherwise be prohibited. While the report lacks detail on when it could be used, it talks of “…the need in certain sectors to pool resources to cover large fixed costs and achieve the scale needed to compete at the global level”.

Draghi is clear on the need to ensure such a defense is not abused. To mitigate this risk, his proposal envisages that this extra leeway would come with strings attached. Parties would need to agree to certain R&D investment thresholds and then submit to enhanced reporting post-closing. The Commission would monitor these disclosures and step in if the commitments weren’t met.

Draghi also recommends that the Commission assess the impacts of mergers on public security and the resilience of the EU economy, notably in sectors where these considerations are critical such as defense, energy and space. Here, such an approach would further open up the prospect of a more M&A-friendly EU deal environment. Likewise, Draghi would like to see authorities providing clearer and swifter guidance to companies seeking to collaborate more closely with their competitors in areas where co-ordination is needed to drive technological standardization, or in pursuit of the EU’s broader decarbonization goals.

Consistent with his headline message that the EU must compete in the global arena as a coherent and coordinated bloc, Draghi advocates that the granting of state aid to companies in strategic sectors be administered at EU level to ensure it aligns with EU-wide industrial policy and that subsidies are allocated efficiently.

Speaking at the launch of the report, Draghi told reporters that competition enforcement “should be more forward-looking rather than prudential.”

Attention is now turning to how likely his plans are to be implemented. And amid the plaudits and the put-downs, the views of one person – at least for now – carry particular weight.

Commission President Ursula von der Leyen engaged Draghi to conduct his study, and it’s striking how closely their views align. Indeed it’s possible to trace their shared thinking through Von der Leyen’s political guidelines (which were released in July 2024 and set out her program for her second five-year term), Draghi’s report (published on September 9) and Von der Leyen’s September 17 mission letter to Teresa Ribera Rodriguez, the commissioner-designate for a Clean, Just, and Competitive Transition. This is a newly-created portfolio that reframes the traditional competition mandate held for the past decade by Margrethe Vestager.

Ribera’s priority issues and main projects, as re-stated in the European Parliament’s October briefing and fleshed out by Ribera herself in her answers to the Parliament’s questionnaire ahead of the confirmation hearing held on November 12, are also strikingly in line with Draghi’s views. 

Prominent alignment among Von der Leyen, Draghi and Ribera

Von der Leyen began to foreshadow the themes in Draghi’s analysis in her political guidelines, in which she talked of reforming EU merger rules to ensure “innovation and resilience are fully taken into account”.

Draghi fleshes out the innovation theme in his report, which recommends that the Commission “accounts for innovation and future competition in its decisions … [and] changes its operating practices and updates its guidelines” in pursuit of this goal.

Just over a week later, Von der Leyen’s letter to Ribera instructed her to “modernize the EU’s competition policy”, including by revising the EU’s horizontal merger control guidelines to “give adequate weight to the European economy’s more acute needs in respect of resilience, efficiency and innovation”.

In her written responses to the Parliamentary questionnaire, Ribera made numerous references to the Draghi report, and built on Draghi's recommendations and pledged to modernize competition policy by focusing on simplifying and speeding up the relevant processes and aligning with the EU’s priorities. She stated:

Ribera also vowed to modernize merger control to ensure it captures “contemporary needs and dynamics”, citing “changes in efficient scale for investment-intensive activities, or in the geographic scope of operations of rival firms” as relevant considerations to be factored into the analysis.

Further intellectual alignment can be found in relation to reforming the EU’s state aid framework to accelerate decarbonization, and channeling more investment towards so-called Important Projects of Common Interest (IPCEIs).

Again in her response to the questionnaire, Ribera committed to simplifying and speeding up state aid assessment procedures and developing a new state aid control framework to decarbonize the European industry. She identified IPCEIs as critical to delivering European solutions to decarbonization and green transition, and promised to facilitate participation and access to them.

The papers also stress the need for Europe to continue protecting its businesses from global tech giants and state-backed foreign acquisitions using the powers afforded by the Digital Markets Act and Foreign Subsidies Regulation. The latter point is important – Draghi’s plans are designed to grow European champions, so bids from outside the EU will still be closely monitored under Europe’s foreign investment screening rules. Ribera, for her part, has promised a “vigorous and rigorous enforcement” of the Digital Markets Act and Foreign Subsidies Regulation.

We are also seeing member states take further steps to protect strategically important businesses – the Belgian government for example has recently purchased a minority stake in materials technology company Umicore “as part of a broader strategy of participations with a view to employment, innovation and geopolitics”. Being a shareholder gives the government a direct say on any future takeover bids.

Still, while Ribera’s responses clearly echo Draghi’s ambitious recommendations, her statements remain rather vague.

What could stand in the way of Draghi’s recommendations being implemented?

It's clear Ursula von der Leyen believes Mario Draghi’s prescription can cure Europe’s ills. But she will face barriers to implementing his ideas, not least the political challenge of pushing for greater EU harmonization in the wake of a Parliamentary election that saw a surge in support for Eurosceptic parties. Following the election of Donald Trump as American president, member states must consider whether their interests are better served through closer unification.

There is also the issue of the Court of Justice of the European Union. While Draghi’s competition plan requires only a reinterpretation of existing EU regulations rather than the passing of new ones, there is a corpus of European case law attached to their current application.

As it showed in the recent Illumina/GRAIL decision, the ECJ is willing to overrule the Commission when it feels its thinking has strayed too far from the intent of EU regulations. But the case could also be viewed as a sign of hope by supporters of Draghi and von der Leyen’s vision.

The Court ruled that the Commission went beyond its powers in blocking a deal it saw as a “killer acquisition” because it reviewed the transaction despite the deal failing to cross either the EU or relevant national notification thresholds. This is exactly the sort of pro-M&A outcome that could become more commonplace if Draghi’s ideas prevail.