The European Union stands at a critical juncture where accelerating investment in Artificial Intelligence (AI) and implementing structural reforms are essential for debt sustainability. This was the core message from Mario Draghi during a speech in Switzerland honoring economist Karl Brunner, where the former ECB President warned of the widening productivity gap between Europe and the United States.
The Productivity Challenge and Debt Risks
According to Draghi's analysis, the Eurozone is feeling the full weight of high interest rates without reaping the growth benefits currently seen in the US. He warned that without additional measures and reforms, Europe's average debt-to-GDP ratio could soar to 130%, or even 155% when weighted by economic size, by the year 2040.
AI is identified as a key catalyst in this strategy. Draghi estimated that rapid AI adoption could add up to 0.4 percentage points to total factor productivity growth annually over the next decade. He noted that an additional 0.5% in annual growth would cover approximately one-third of the distance required for a sustainable debt trajectory.
The €100 Billion Proposal
To bridge the infrastructure gap, Draghi proposed allocating approximately €100 billion from the EU budget to fund computing power and de-risk private investments. This amount represents about 5% of the next EU budget currently under negotiation and would notably avoid straining national budgets while governments attempt to curb fiscal deficits.
"Europe is fully undergoing the increase in interest rates, but only a part of the growth," Draghi remarked.
Furthermore, he emphasized that monetary policy must remain focused on price stability. He warned against the perception of debt "monetization," which could trigger a vicious cycle of rising inflation expectations and increased borrowing costs.
