Draghi’s proposal for more bureaucracy to simplify bureaucracy is my hoot of the day.
The Future of European Competitiveness
Please consider the 69 page proposal on The Future of European Competitiveness.
Yes, I read the whole thing and it’s a hoot.
Budget / Debt
Draghi: To meet the objectives laid out in this report, a minimum annual additional investment of EUR 750 to 800 billion is needed, based on the latest Commission estimates, corresponding to 4.4-4.7% of EU GDP in 2023. For comparison, investment under the Marshall Plan between 1948-51 was equivalent to 1-2% of EU GDP.
Mish: This is absolutely out of the question given EU budget rules.
Draghi: It is unquestionable that the issuance of a common safe asset would make the CMU much easier to achieve and more complete.
Mish: Draghi is asking for a mutual Eurobond and comingled debt. This would require a treaty change which would take unanimous consent. Germany has said no, and the German constitution would not allow such a change.
Draghi: To increase the financing capacity of the banking sector, the EU should aim to revive securitisation and complete the Banking Union.
Mish: This requires a treaty change. Germany has a veto. Heck, every nation has a veto. The more countries that join the EU, the more vetoes there are.
Regulation
Draghi: We claim to favour innovation, but we continue to add regulatory burdens onto European companies, which are especially costly for SMEs and self-defeating for those in the digital sectors. More than half of SMEs in Europe flag regulatory obstacles and the administrative burden as their greatest challenge.
Mish: I totally agree but talk is cheap. This issue has been understood from the beginning, decades ago.
Draghi: The European model combines an open economy, a high degree of market competition and a strong legal framework and active policies to fight poverty and redistribute wealth.
Mish: Wealth redistribution is a problem, not a strength. It takes from the productive and gives to the unproductive.
Draghi: Regulatory barriers to scaling up are particularly onerous in the tech sector, especially for young companies. Many EU laws take a precautionary approach, dictating specific business practices ex ante to avert potential risks ex post. For example, the AI Act imposes additional regulatory requirements on general purpose AI models that exceed a pre-defined threshold of computational power – a threshold which some state-of-the-art models already exceed.
Mish: Correct. However, there is zero impetus to change any rules. Every country has a say, by design, and that is one of the fundamental flaws of the EU.
Draghi: There are many barriers that lead to companies in Europe to “stay small” and neglect the opportunities of the Single Market. These include the high cost of adhering to heterogenous national regulations, the high cost of tax compliance, and the high cost of complying with regulations that apply once companies reach a particular size. As a result, the EU has proportionally fewer small and medium-sized companies than the US and proportionally more micro companies.
Mish: Correct for the same reason as above.
Draghi: Competition for computing power and lack of investment in connectivity could soon translate into digital bottlenecks.
Mish: Could? What do you mean could. It has. And the EU’s response is to regulate AI to death and go after Google, Apple, Microsoft, and Amazon never letting any company ever get big enough to accomplish much of anything.
Draghi: To unlock private capital, the EU must build a genuine Capital Markets Union (CMU) supported by a stronger pension. As a key pillar of the CMU, the European Securities and Markets Authority (ESMA) should transition from a body that coordinates national regulators into the single common regulator for all EU securities markets, similar to the US Securities and Exchange Commission.
Mish: The US would do well to get rid of the SEC or at least minimize its role to actual fraud.
Carbon Neutrality
Draghi: Yet growth in the EU has been slowing, driven by weakening productivity growth, calling into question Europe’s ability to meet its ambitions. The EU has set out a range of ambitions – such as achieving high levels of social inclusion, delivering carbon neutrality and increasing geopolitical relevance – which depend on maintaining solid rates of economic growth.
Mish: The idiotic goals of social inclusion and carbon neutrality are two of the reasons the EU is falling behind.
Draghi: Europe needs a joint plan for decarbonisation and competitiveness.
Mish: The goals are contradictory at the required pace of implementation.
Draghi: In an environment of historically high public debt-to-GDP ratios, potentially higher real interest rates than seen in the last decade and rising spending needs for the decarbonisation, digitalisation and defence, stagnant GDP growth could eventually lead to public debt levels becoming unsustainable and Europe being forced to give up one or more of these goals.
Mish: Hello! That’s happening already.
Energy Policy
Draghi: High energy costs in Europe are an obstacle to growth, while lack of generation and grid capacity could impede the spread of digital tech and transport electrification. Commission estimates suggest that high energy prices in recent years have taken a toll on potential growth in Europe. The EU’s decarbonisation goals are also more ambitious than its competitors’, creating additional short-term costs for European industry.
Mish: Here’s another hoot. The EC estimates high energy prices have taken a toll on growth, yet the EU still insists on decarbonization efforts that are diving up costs. The solution, which Draghi did not admit, is to kill the asinine targets.
Draghi: It is not guaranteed that EU demand for clean tech will be met by EU supply given increasing Chinese capacity and scale. The EU aims to achieve a minimum of 42.5% of its energy consumption from renewable sources by 2030.
Mish: Actually it is either a guaranteed failure or a guaranteed high cost, or both.
Draghi: Europe must confront some fundamental choices about how to pursue its decarbonisation path while preserving the competitive position of its industry.
Mish: Yes. The only solution is to kill the targets.
Draghi: The EU is the largest global gas and LNG importer, yet its potential collective bargaining power is not being sufficiently leveraged and relies excessively on spot prices, threatening Europe with more volatile natural gas prices.
Mish: LNG is always going to be much more expensive than natural gas. Second, there is never going to be any leverage in buying LNG. Draghi’s proposal is nothing more than buyer’s cartel silliness. Sanctions on Russia failed on the same ridiculous idea.
Draghi: Over time energy taxation has become an important source of budget revenues, contributing to higher retail prices.
Mish: OK stop the taxes, stop decarbonation, or stop complaining.
Draghi: “Hard-to-abate” industries are suffering not only from high energy prices, but also from lack of public support to reach decarbonisation targets and investment in sustainable fuels.
Mish: This guy is full of hoots. The lack of public support is because the cost of energy is too damn high and the EU will not consider buying from Russia, the cheapest source.
Need for Minerals
Draghi: The global market for critical minerals for the energy transition has doubled during the past five years, reaching EUR 300 billion in 2022v . Accelerating deployment of clean energy technologies is driving unprecedented growth in demand. From 2017 to 2022, global demand for lithium tripled, while demand for cobalt rose by 70% and 40% for nickel. According to IEA projections, mineral demand for clean energy technologies is expected to grow by a factor of 4 to 6 by 2040. However, the supply of CRMs is highly concentrated in a handful of providers, especially for processing and refining, which creates two main risks for Europe. The first is price volatility, which hampers investment decisions. For example, although an extreme case, the price of lithium increased twelvefold over two years before tumbling again more than 80%, preventing the opening of competitive mines in the EU. While oil stocks and gas storage play an important role in cushioning shocks in the energy market, there is no equivalent for critical minerals in the event of large market swings. The second risk is that CRMs can be used as geopolitical weapon, as a large part of extraction and processing is concentrated in countries with which the EU is not strategically aligned.
Mish: Either open up more mines or stop the absurd strategies that requite more batteries and thus more minerals.
Space
Draghi: The European space sector would benefit from updated governance and investment rules, and greater coordination of public spending in a true Single Market for space.
Mish: The sector would benefit from little or no governance and less public spending. Those who disagree may with to look at SpaceX.
And now, here’s the absurd conclusion.
Competitive Coordination Framework
- The report recommends establishing a new “Competitiveness Coordination Framework” to foster EU-wide coordination in priority areas, replacing other overlapping coordination instruments.
- The Competitiveness Coordination Framework would be divided into Competitiveness Action Plans for each strategic priority, with well-defined objectives, governance, and financing.
- Refocusing implies that the EU should be more rigorous in applying the subsidiarity principle and exercise more “self-restraint”.
And Finally!
To start lowering the “stock” of regulation, the report recommends appointing a new Commission Vice President for Simplification to streamline the acquis, while adopting a single, clear methodology to quantify the cost of the new regulatory “flow”!
Vice President for Simplification
What a bleeping hoot!
You could not possibly make this up.
The EU and EMU (Eurozone monetary union), are both broken beyond repair.
They cannot be repaired because it takes unanimous consent to make any changes to the treaty itself.
Draghi’s budget proposal is a nonstarter for budget reasons.
Heck, the EU bureaucracy is such that it will probably spend the next five years creating a “Vice President for Simplification”. And all it will do (at best), is come up with more rules, that some country will object to.
Treaty Change
In Draghi’s 69 page report, he mentioned the word “treaty” only four times. And everyone of those times was a futile attempt to get around the fact that a treaty change is requited.
One thing that won’t require a treaty change (I don’t think) would be to create a “Vice President for Simplification” office.
However, it would require a treaty change for that office to have authority do anything significant.
Germany Suspends Schengen, Immigration Repercussion Across the Entire EU
On September 10, I commented Germany Suspends Schengen, Immigration Repercussion Across the Entire EU
For the first time in EU history, Germany is at the forefront of immigration suspension. Other EU countries will follow.
On reader said my post is not true. I disagree and even referred to Eurointellince which knows more about the EU than perhaps anyone.
From Eurointelligence …
It is almost comical that as Mario Draghi presents his report on the future of Europe, Germany has the brilliant idea to re-impose border controls and suspend the Schengen system of passport-free travel. The German government has come under pressure to crack down on immigration by trying to stop refugees at the border. Nancy Faeser, the interior minister, said the reason was to protect Germany against Islamic extremism, following a series of murders and attempted murders committed by immigrants in the last few weeks. The Schengen rules require an over-riding national security interest.
The collateral damage will be huge. Austria already said it will not take in any immigrants rejected by Germany. So Austria will almost surely do the same and close its border. Nobody to the east and south-east of Germany has the physical capacity and political willingness to absorb immigrants. The Czech Republic, Slovakia, Hungary, Slovenia and Croatia will all do the same. We assume that Switzerland, not a member of the EU but a member of Schengen, will follow.
Immigrants Are Not Welcome
My post was accurate. Only a part of the Schengen system of passport-free travel was suspended. But it’s a key component.
And “Austria, the Czech Republic, Slovakia, Hungary, Slovenia and Croatia will all do the same”.
Where is it headed?
Meanwhile, back in the states ….
More Americans Call Volume of Immigrants a ‘Critical Threat’
The Washington Post reports More Americans Call Volume of Immigrants a ‘Critical Threat’
Americans’ concerns about immigration have risen sharply this year, with half of Americans saying that the large number of immigrants and refugees entering the country is a “critical threat” to U.S. interests, up from 42 percent last fall to the highest level since 2010, according to a poll by the Chicago Council on Global Affairs.
The poll found that most Americans support two proposals laid out by former president Donald Trump: using U.S. troops to stop immigrants from coming into the United States from Mexico and expanding a wall on that border.
But a larger majority of Americans oppose Trump’s proposal to put undocumented immigrants in mass-detention camps. If elected, Trump has pledged to immediately launch “the largest domestic deportation operation in American history.”
A late July Wall Street Journal poll found that voters thought Trump would handle immigration better than Harris by 53 percent to 40 percent.
Chicago Council’s poll found 50 percent of Americans say large numbers of immigrants and refugees coming into the United States is a critical threat to the country’s interests, marking the highest level in Chicago Council polling since 2010, when it was 51 percent. Concerns over immigrants as a threat peaked at 60 percent in 2002, less than one year after the Sept. 11 terrorist attacks. The United States has about 45 million immigrants, about 11 million of whom are undocumented.
“Mood on Main Street Darkens”
In the US, NFIB “Mood on Main Street Darkens” Small Business Optimism Dips
The July jump in small business optimism momentum lasted precisely one month.
What Are the Odds of Recession?
In case you missed it, please see The McKelvey Recession Indicator Triggered, But What Are the Odds?
Many eyes are on the McKelvey recession indicator. Too many? That would probably be the case if everyone believed it.
Heck, most of my own readers don’t seem to believe it. I have the odds well over 50 percent that a recession is underway. Click on the above link for discussion.