The news for Europe just keeps getting worse. The French government collapses, plunging the EU's second-largest economy into turmoil. France's political upheaval in December offered another glimpse at fractious European affairs. Germany is under pressure, and Volkswagen workers are striking hard. In my view, we are

already in a crisis mood. Our former model is over. If we follow our classical agenda, we will be out of the market. I have no doubt the EU's economy is now fighting for survival and struggling to keep pace with the US and China. Had the

European economy grown as fast as the American economy over the past couple of decades, we'd have been generating three trillion EUR of extra income every year. That's roughly the equivalent to the total GDP of France being routinely added into the economy. Europe needs to have a digital-era economy with

companies that challenge those from China and from the US. Without that, the region is at risk of being unable to afford to protect itself in a world where security is no longer guaranteed. It's just a very tense moment for the world, and Europe's at the center of

[Music] This is one of the most consequential figures in global economics, and in September he sounded an alarm: Europe is weak, very weak. Mario Draghi will this morning deliver his long-awaited report on what Europe must do to regain its competitiveness. Mario Draghi is a highly

respected economist, former president of the European Central Bank during one of Europe's most difficult times, and also led Italy through another challenging period. He's become a figure that you look to in times of trouble. His report warned that the US and China were innovating so

Expeditiously, Europe needed to invest hundreds of billions of euros extra every year to compete, possibly to survive.  The "druggy plan" got the conversation started, and then, of course, there's Trump, and then, of course, there's China, and then there's a war in Ukraine

and a war in the Middle East. The conclusion was: Europe has been stuck in a rut, and if nothing changes, if the current trajectory is maintained, then Europe will probably account for less than a tenth of global GDP by 2050, which points to Europe having a much

diminished role in the global economy in years to come. Increasing productivity is one of the solutions to this. It doesn't mean making people work harder; it means that for the same amount of work, a person creates more value. To appreciate the challenge, let's quickly examine one of Europe's most

iconic traditional industries: Italy's olive business. It's worth billions of euros. Prime Minister Giorgia Meloni's government wants the industry to grow and help the country reduce its mammoth debt burden. It's why olive mills received tens of millions of euros in post-pandemic EU aid granted

to Italy. Some farms spent their share upgrading their machinery. [Music] Productivity is one of the best ways to grow an economy because it means that for the same amount of work, a person creates more value. And as important as olives are, cultivating them isn't as productive

as developing semiconductors or solar panels—two things the US and China prioritized years ago. We haven't taken frontier technologies and dispersed them through our economy in a way that would raise incomes and raise our efficiency. So, by being left behind, we

are now poorer, and we're just not keeping pace with American productivity. Which is what led to the estimate that the EU economy is 18% smaller than it may otherwise have been, and that's equal to a shortfall of about 3 trillion euros. And why? One reason is the EU's...

massive investments in transformative start-ups. We don't translate technologies at the cutting edge into new businesses, and we don't have hugely successful technology companies in anything like the way that the US does, or even China to some extent. One reason is we don't have great venture capital

markets here. Most of the world's really big companies have been funded via this actually quite tiny asset class in Europe that sort of didn't happen. Part of it also is regulation. Europe really believes in regulation; that's not a bad thing, as I'm always told when I'm

in Brussels, is what we're doing is a blueprint for everyone else. But if you put it all together, you have a situation where you're not encouraging growth. We are behind everywhere else in the world. When people talk about billions, they sound like large numbers, but now we're

talking about trillions in terms of the valuation of tech companies. Just take the biggest US ones over the last couple of years; if their combined value was a country, it would have the third biggest GDP in the world, after the US and China. I think people are waking up to

the fact that Europe really is in trouble because not only does it not have the tech platforms, but the digital era is eating into everything, as we're seeing what's happening in Germany with the car industry, for example. That electric cars are fundamentally digital-era products. Volkswagen is at the...

At the center of this difficult transition, it's still Europe's biggest car maker and one of the EU's industrial engines. But it didn't prepare for an electric vehicle revolution, or that it would be led by an American startup called Tesla and later rivaled by China. VW became emblematic of Germany's

struggle. What VW is trying to do is close up to three factories; we're talking about tens of thousands, potentially, of job cuts. Meanwhile, Germany's neighbor is politically and financially deadlocked. France has a number of problems; high debt is one of

them. The deficit is very wide, so that's the gap between what the government spends and what it brings in in tax revenue. That's huge, and it's proving very difficult to tackle. It's also over what the EU even allows, which is this 3%

of GDP. France was well past that this year and is forecast to be for some time, and it makes investors more apprehensive about buying French debt. That's what this line shows: the higher the line, the riskier France is judged to be relative to the traditionally very

safe Germany. And in December, that risk was the highest it had been since 2012, when Europe was in the midst of a debt crisis, which is just compounding the fiscal difficulties that it faces. So, until there is a political resolution, it's hard to see the French economy

turning around. People are waking up to the fact that France is facing a potential debt crisis, and Germany, on the other hand, is facing a potential employment crisis where it won't have the same number of workers producing the types of things that Germany has made itself famous for, and that impacts the

The whole of the European Union... I really don't think Europe can do anything without France and Germany agreeing and doing well. You need those two economies to push everyone else, and everyone else trades with them, so we have no options; we need them to do well together.

This is the state of Europe that Mario Draghi rang the alarm about: the bloc is too reliant on traditional industry, too unproductive, too uncoordinated, and too averse to risk. This fractured political landscape, in which countries look to protect their own interests over those of the Union, makes change difficult, so...

What's next? Where do we look for warning signs or silver linings? The Euro against the dollar is a good diagnostic for where Europe is being left behind. It's trended downward and traded at equal value only a handful of times. But to command geopolitical weight, you need a...

big economy in dollar terms. So crossing that parity threshold is a worrisome indicator for economists and politicians. A fall to parity could embolden populist politicians who oppose the currency, raising the remote but real threat of another Brexit-like event. Germany's right-wing AfD party said it's planning...

an election campaign advocating this. But experts, including Draghi, have stressed that change, however difficult, is possible. Cars, machines, robots—this kind of precision engineering required to create this kind of hardware is something Europe is traditionally very, very good at, particularly Northern Italy, Southern Germany, Switzerland—these...

places that are very, very good at making things very well may play a pivotal role in where we produce high-quality technological goods going forward. [Music]

Europe's Missing Trillions

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