Draghi: the EU should invest 100 billion in artificial intelligence

Secondly, growth in the euro area has lagged behind the interest rate it now faces at a global level: ‘The immediate boost from higher deficits and investment in artificial intelligence is being felt most keenly in the United States, which is also set to benefit most from faster productivity growth if artificial intelligence delivers the expected results. Europe is bearing the full brunt of the rate rises, but only a fraction of the growth. This gap is not yet reflected in interest costs. Debt issued during the decade of low interest rates still carries low coupons, so the average rate paid by governments – around 2.25 per cent – remains well below nominal growth of around 3.5 per cent,” stressed the former governor, who recently set up the think tank Rhine Group.

Furthermore, if governments finance their increased spending without further consolidation measures or reforms, the average European debt-to-GDP ratio will reach 130 per cent by 2040. Weighted by the size of the economies, this ratio will reach 155 per cent. ‘Some fiscal consolidation in the medium term is inevitable. However, if this were to take place exclusively through spending cuts and tax rises, it is unlikely to produce the necessary results.’

“Supranational reforms,” added Draghi, “have become the most important driver of growth. ‘A detailed plan for implementing these reforms has been set out in the report on Europe’s competitiveness, and much of it is contained in the EU’s roadmap. The first thing we must do is implement this roadmap. This will also enable us to finance the investments Europe needs in the sectors of technology, clean energy and defence at a time of budgetary constraints.”

Another important point is this: over the last three decades, the typical consolidation in Europe has involved an overall effort equivalent to 3–4 per cent of GDP. However, ‘if countries are weighted according to the size of their economies, those required to make adjustments would now need to improve their primary balances by around 6–7 per cent of GDP – almost double the previous figure. And even the smaller effort has never been politically easy. Governments’ ability to implement fiscal consolidation therefore depends on growth. Of the two factors determining debt, the interest rate is increasingly set outside Europe. Growth is the only one that Europe can still influence’. In short, an extra half a percentage point of growth per year, sustained until 2040, with part of the additional revenue allocated to savings, ‘would take Europe about a third of the way towards sustainable debt. Growth on this scale is within our reach. Rapid adoption of Artificial Intelligence could add up to 0.4 percentage points to total factor productivity growth over the next decade, whilst domestic and single market reforms, taken together, could add around another half a percentage point per year’.

In this context, ensuring access to computing capacity benefits all Europeans, but such capacity is insufficient when each country acts on its own. ‘The public sector contribution required to mitigate the risk of this investment, estimated at around €100 billion, is one of the main candidates for funding through the EU budget.’ Even the full amount ‘would require only around 5 per cent of the next budget, which is currently under negotiation, and would not place a burden on national budgets whilst they are being consolidated’.