- Former European Central Bank President Mario Draghi urged the EU to get its own house in order by addressing trade barriers between member states, while downplaying the relative harm from potential U.S. tariffs.
The obstacles that European Union members impose against each other do much more economic harm than the U.S. could with tariffs, former ECB President Mario Draghi said.
In a column in the Financial Times on Friday, he highlighted the EU's inability to ease supply constraints, especially high internal barriers and regulatory hurdles.
"These are far more damaging for growth than any tariffs the U.S. might impose—and their harmful effects are increasing over time," he wrote.
President Donald Trump has imposed 10% tariffs on China, paused 25% duties on Canada and Mexico, announced 25% tariffs on steel and aluminum, while signaling Europe will be targeted soon.
By contrast, Draghi cited IMF estimates that show Europe's internal barriers are equivalent to a 45% tariff on manufactured goods and a 110% levy on services.
As a result, trade between EU members is less than half what occurs between U.S. states, and as services account for a greater share of economic activity, the impact of Europe's barriers grows more severe, he added.
Meanwhile, trade barriers with countries outside the EU have been falling, making imports more appealing and prompting Europe's companies to seek growth opportunities abroad.
That's made the EU more dependent on—and vulnerable to—trade, which now accounts for 55% of the eurozone's GDP, up from 31% in 1999. Comparable figures for China ticked up to 37% from 34%, while the U.S.'s share edged up to 25% from 23%.
But the problems with Europe's economy aren't just on the supply side. Governments have tolerated weak demand since the 2008 financial crash, Draghi said.
That reluctant to juice demand is exemplified by a wide gap in fiscal policies, namely the willingness to spend more than what comes in from tax revenue. From 2009 to 2024, the U.S. government funneled the equivalent of 14 trillion euros into the American economy via primary deficits versus just 2.5 trillion euros in the eurozone, he estimated.
Having detailed a plan last year for Europe to revive its economy, Draghi argued governments have the power to turn things around—if they fundamentally change their mindset away from national goals and action.
"But it is now clear that acting in this way has delivered neither welfare for Europeans, nor healthy public finances, nor even national autonomy, which is threatened by pressure from abroad," he concluded. "That is why radical change is needed."
Fears of a U.S.-Europe trade war have focused more attention on the EU's lack of growth, but alarm bells have been going off for a while.
Germany, Europe's largest economy, has been mired in an economic crisis, and France's economy has stagnated too. Both countries are also locked in political upheavals that stand to slow any responses.
Nobel laureate Michael Spence warned in August that Europe is suffering from an innovation deficit and weak productivity, putting its economy on a path to stagnation.
The economist said long-term productivity growth depends on structural change, led by new technology.
“This is where Europe’s principal problem lies: In a range of areas, from artificial intelligence to semiconductors to quantum computing, the U.S. and even China are leaving Europe in the dust,” he wrote in a Project Syndicate op-ed.
