European Union flags flutter on the day European Central Bank (ECB) President Christine Lagarde speaks to reporters following the Governing Council’s monetary policy meeting in Frankfurt, Germany.  (Reuters Photo)

By Hugo Dixon

TINOS, Greece- The European Union brought peace and prosperity to a troubled region in the decades following World War Two. But it may lack energy and become impotent in the decades ahead.

Not only is the EU economy stagnating. The bloc may also be bullied by Russia, China and even the United States. While there are potential fixes, such as the plan former European Central Bank boss Mario Draghi set out last week, the EU and its members are unlikely to implement them. It’s a sad, bad future.

The sad part of the prognosis is economic stasis. EU productivity has grown on average only 0.7 percent a year since 2015. Combine that with a shrinking working-age population and the economy will stall, Draghi concluded in a report the European Commission, the bloc’s executive arm, asked him to produce.

The bad bit is that a moribund EU is easier for more powerful countries to push around. Russia poses a military threat, especially if the Kremlin wins its war in Ukraine. The danger from China and the United States, whose economies are growing more rapidly than the EU’s, is commercial.

If Donald Trump wins the US presidential election in November, the risks to the EU will be acute. The Republican nominee could not even bring himself to say he wanted Ukraine to win the war with Russia in last week’s debate with his Democratic rival Kamala Harris. He has also threatened to impose tariffs on allies as well as China. And if the EU and the United States engage in a trade war, there’s little chance of them joining forces to stand up to Beijing.

Draghi has a blueprint to revitalize the EU. He wants the region to invest an extra 800 billion euros a year, equivalent to nearly 5 percent of its output. Much of this would fund an industrial policy to compete with the United States and China, with an emphasis on clean technology and high-tech sectors such as artificial intelligence.

The EU would also boost its defenses to meet the threat from Russia. The bloc’s armaments industry suffers from fragmentation. Europe operates 12 different types of tank, while the United States makes only one.

Germany’s defenses are in a particularly parlous state, according to a separate report by the Kiel Institute published last week. Russia is now able to produce as many weapons in six months as all of Germany’s armed forces currently field.

Draghi also wants the EU to take a more joined-up approach to economic statecraft. He recommends that industrial policy should dovetail with initiatives to prevent unfair competition from China and policies to secure alternative supply chains of critical products and materials so that the EU is not overly dependent on the People’s Republic.

The action plan does not end there. The former Italian prime minister also calls for improvements to the bloc’s single market to increase productivity growth and reforms to the EU’s governance to prevent the region’s 27 member states from vetoing so many initiatives.

While his proposals are laudable, the political conditions are not ripe to implement them. This is because the most ambitious initiatives – covering finance, foreign policy, defense and governance – require unanimous approval by the EU’s member states. – Reuters