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BackAmid geopolitical uncertainties and crises, Europe is striving for greater competitiveness. The Draghi report serves as a guide for EU policy. We spoke to Andrew Watt, who took over the management of the European Trade Union Institute (ETUI) in October 2024, about the conclusions and recommendations contained in the report. He views some of the report's proposals as positive, but also expresses some clear criticisms.
Andrew Watt, an experienced UK-born economist, is taking over the management of the ETUI. He was already employed there from 2000 to 2012 as senior researcher. He then moved to Germany as Head of Department at the Macroeconomic Policy Institute (IMK) at the Hans Böckler Foundation. Now he is back in Brussels to shape the course of the European Trade Union Institute. We spoke to him about current challenges and how the European representation of workers' interests can meet them.
AK EUROPA: Mr. Watt, the EU Commission's upcoming work program will be strongly influenced by the much-discussed Draghi report. What do you think about it?
WATT: The Draghi report provides a detailed and comprehensive analysis of Europe's situation and its perspectives. It focuses on three critical areas which are interlinked: Closing the EU's innovation gap with China and the US, marrying decarbonization and competitiveness, and increasing Europe's economic security and reducing its dependencies. These are indeed the key issues nowadays, but there are also others. Migration, for example, is scarcely touched on in the report, but is a substantial issue. Draghi's core message can be summarized as follows: Europe faces serious problems in sustaining living standards, its place in the world and its social model in a context of declining working-age populations and a need to invest in decarbonization and its own security, unless it substantially increases its rate of productivity growth and its presence in critical tech industries. It is not a comforting message but, I believe, a realistic and important one. And one thrown into even sharper relief by the incoming Trump presidency.
AK EUROPA: All of Brussels is now talking about competitiveness. What place can trade unions and workers' rights take in this discussion?
WATT: There are some central trade union positions with which Draghi also agrees in his report. Competitiveness is not about cutting costs, especially labour costs, vis-a-vis trading partners in Europe. That is at best a zero and likely a negative sum game. This way of thinking ultimately led us into the euro crisis. It seems Draghi has learned from his time as head of the ECB. Productivity growth is key to competitiveness and, importantly, must go hand in hand with social inclusion. On many issues, Europe is too fragmented to offer credible solutions. The EU decision-making procedures need to be faster and genuinely European public goods need to be provided at EU level. All this needs to be financed. Greening our economy and maintaining living standards need not be contradictory aims. These are important messages in the Draghi Report that trade unions and other progressive actors can and should amplify.
AK EUROPA: What are the weak points of the report?
WATT: A crucial point is the financing of investment needs. Where is it to come from? Draghi rightly calls for the public and private sector to combine their efforts. However, his calls for substantial funds at EU level to finance EU-wide projects were immediately shot down as politically unfeasible. At the same time, he failed to address the problems that still dog national fiscal policy because of EU rules. Even after the Economic Governance Reform, which might be an improvement, we still lack important elements, like a golden rule for investment that would permit member states to deficit-finance investment projects that are considered important for the community. Under these two conditions it is hard to see where the additional public investment will come from. Progressive actors need to sharpen their arguments and intensify their campaigns with respect to both EU and national levels, also because in many cases private investment will only come forth if there is prior public investment. Think for example of electric vehicles and the necessary investments in electricity grids and charging infrastructure. The whole ambitious project is therefore in danger of petering out.
One thing that is not mentioned? Wages. Odd. You might think that the price of labour had something to do with how efficiently firms used it. This is a blind spot. The same is true of the role played by “workers voice” in companies, as a means to raise productivity. For along with the productivity slowdown, we have seen wage growth drifting below that of productivity growth, meaning the wage share is falling. And we have seen multi-employer collective bargaining eroding. Austria is a notable exception in a positive sense. In Germany, for instance, there was a fall from about 75 % to 50 %. This means that weaker firms in a sector can solve their competitiveness problem by pushing wages down rather than improving productivity. The so-called “productivity whip” has lost its effectiveness. Trade unions should make full use of the possibilities opened by the EU Minimum Wage Directive, with its 80% collective bargaining coverage target to extend multi-employer bargaining. This is a bar that Austria clears anyway. We should seek to defend and extend workplace democracy – as a value in itself, but also as a means to raise productivity and thus help underpin our economic and social model.
And there is a strong push for deregulation in the report, which I certainly find problematic. In some specific cases that might be needed, but one should not expect a big impetus from deregulation and non-economic policy goals cannot be lost sight of.
AK EUROPA: The EU is often compared to the USA in terms of competitiveness and economic performance. Draghi also refers to the USA in his report. Rightly so?
WATT: There is a lot of talk in the report about the US and praise for things like its venture capital markets, its risk-taking, its top-flight universities etc. Some of this is justified. But the report does not note that the US has been willing to run much bigger fiscal deficits to cushion against shocks and, recently to promote investment. The USA has never met the 3 % Maastricht target for more than twenty years. Not once! Its monetary policy is more obviously oriented towards stabilising growth and employment than in Europe. With the Inflation Reduction Act, it has launched a massive “vertical” industrial policy with a strong social conditionality that we are still lacking in Europe.
AK EUROPA: What direction will the ETUI take under your leadership in view of these new challenges?
WATT: I arrived as General Director of the ETUI as the Draghi Report had just dropped and Trump had just won the Presidency. It is often said that Europe – and indeed the world – is facing a polycrisis. Interaction of climate change, migration, geopolitical conflicts/wars, supply chain blockages, inflation, the rise of populist parties etc. There is clearly a great need for orientation at such a time. A research institute of our type cannot turn on a 10-cent coin. But I can assure you that we will be providing in the coming weeks and months deeper analyses of the issues I have just mentioned to strengthen the arguments of the European labour movement in the debates to come.
The opinions and views expressed in this interview do not necessarily reflect the positions of AK.
Further information
ETUI: Website
ETUI: Andrew Watt
ETUI: Five questions for Andrew Watt, the ETUI’s new General Director
AK EUROPA: Draghi report on the future of European competitiveness
AK EUROPA: The Draghi Report. Competitiveness at the centre of EU policy