Achievable Draghi: What Europe Will Actually Deliver by 2028
Speaker's Corner
The bottom line: The Draghi policy agenda for Europe will not be implemented as designed — the fiscal and governance transformation at its core is politically blocked and likely to stay that way. What Europe will deliver is narrower and already moving: sector-specific legislation, funding instruments, and regulatory streamlining, concentrated in defense, energy, clean tech, and capital markets. The Industrial Accelerator Act, now in negotiation, is the template. Executives should stop waiting for a single Brussels-wide competitiveness push, engage with the sector files that affect them while the texts are still contestable, and treat 2026–2028 as a window for scaling proven capability into Europe, not for originating frontier innovation there.
Strategic Context
Five years ago, Europe was economically dependent – in different ways – on Russia, China, and the US, and largely complacent about it. Geopolitical shocks have ended that complacency: an aggressive Russia, an ascendant China, an unreliable and at times hostile US, and a fraying global free-trade consensus. Europe is now trying to manage a partial decoupling from all three while minimizing the economic damage. Layered on top are structural pressures: the AI race, decarbonization commitments, demographics, and stagnant productivity growth.
European leaders understand the problem. Nearly two years ago, Mario Draghi – former head of the European Central Bank and Prime Minister of Italy – delivered a report sponsored by European Commission President Ursula von der Leyen. He argued that the productivity and technology gap with the US and China was large, structural, and urgent, and proposed 383 specific measures backed by roughly €800 billion in annual investment (4–5% of EU GDP). The report’s impact has been remarkable: technocratic consensus on the diagnosis and near-universal political endorsement from member states and the European Parliament.
The diagnosis is not unchallenged. Paul Krugman has recently argued that the US–EU productivity gap shrinks considerably after adjusting for purchasing power parity, and that what remains is concentrated in IT, where falling prices shrink it further. If he is right, the urgency premise behind the whole agenda is weaker than advertised. So far, though, the critique has not dented political support – partly because the security rationale for the agenda does not depend on the exact size of the productivity gap.
The agenda is no longer theoretical. On March 4, 2026, the Commission proposed the Industrial Accelerator Act (IAA), binding legislation targeting automotive, energy-intensive industries, and net-zero technologies, with the goal of lifting manufacturing to 20% of EU GDP by 2035, from 14.3% in 2024. The European Council has asked co-legislators – the Parliament and the member-state governments in the Council, who must jointly agree the text – to adopt it by the end of 2026. The IAA’s contents, and its reception, tell us most of what we need to know about how the broader agenda will play out.
The Execution Gap
The structural weaknesses that predate Draghi have not gone away: fragmented national markets and languages, overlapping layers of rules, consensus-bound decision-making, and thin venture capital markets. The last point is not a vague complaint. European pension funds allocate roughly 0.02% of assets to venture capital versus roughly 2% for US pension funds, and US startups raised roughly $175 billion in venture capital in 2025 against about $48 billion across all of Europe – despite comparable population size.
Meanwhile, the problems Draghi diagnosed have gotten worse since 2024, not better. US–Europe relations have deteriorated. Europe is now funding the Ukraine war directly. Chinese dominance in green tech has widened. US climate commitment has weakened. The Iran war has hit EU energy prices harder than US or Chinese prices. The global trade regime has kept deteriorating.
And execution is lagging badly. Draghi’s own one-year assessment put implementation at roughly 10%. The independent Draghi Tracker, launched at Davos in January 2026, put it at 14% fifteen months out; a rival index, the Draghi Observatory, put “strict” implementation at 15.1% and “strict-plus-partial” at 38.9% on the same date. The hardest items – common EU debt, treaty-level governance reform, ending unanimity voting – remain politically blocked, and the Commission has pushed its single-market completion target to 2028.
The EU’s own response to this gap is telling. Rather than forcing full 27-member consensus, von der Leyen has floated letting a “coalition of the willing” subset of member states move forward without the rest, citing the stalled Savings and Investment Union as the test case. Analysts are skeptical it is a silver bullet – the SIU has been blocked for a decade precisely because Germany, France, and Italy disagree – but the fact that it is being floated at all is the signal: Brussels no longer expects unified consensus to deliver the agenda on the original timeline.
The European Parliament’s July 2026 plenary reinforced the fragmented picture in real time. Urgent automotive-sector support, a vote on a narrower “28th tax regime” (a single optional EU-wide regime that startups could adopt instead of navigating 27 national ones – a scaled-down cousin of Draghi’s original idea), and a resolution on digital-asset competitiveness all moved forward as separate, sector-specific tracks rather than as parts of one competitiveness package. The Parliament is structurally built for piecemeal progress: no single bloc holds a majority, and every vote requires the largest party, the EPP (Christian Democrats), to assemble ad hoc coalitions with two or more of the other parties, sector by sector.
Outlook: Four Judgments
Given the scope of the Draghi agenda, executives need a clear-eyed view of what is actually likely to happen as they calibrate European strategy. Four judgments follow.
1. The full technocratic solution set is not obtainable, politically or fiscally.
Politically, there are too many losers and too many decision-makers, and the recommendations require a degree of deference to supranational technocratic authority that member states will not grant and voters will not support. Fiscally, the common borrowing required for investment at Draghi’s scale remains blocked, treaty reform is not advancing, and the war in Ukraine is already claiming limited resources.
2. Even full implementation would not close the technology and productivity gap.
The US and Chinese lead in AI is likely insurmountable at the frontier-model level, and the venture funding data makes the mechanism concrete: this is not just a talent or ideas gap but a capital-structure one, rooted in pension-fund allocation rules and a shallow late-stage market that leaves Europe unable to write the check sizes frontier AI labs require. National and language fragmentation caps the economies of scale and network effects that accelerate technology deployment.
Beyond IT, productivity is not truly Europe’s top priority – social and environmental goals will keep constraining how pro-growth policy can be. EU industrial policy is far more stable than America’s, but it will never match China’s strategic coherence; there are simply too many decision-makers and objectives. Even Asia’s industrial-policy success stories follow a model the EU cannot replicate: Taiwan’s semiconductor strategy worked by concentrating support behind a single national champion, a degree of concentration that consensus-based EU funding structurally rules out.
3. The Industrial Accelerator Act shows what “achievable Draghi” looks like.
The achievable part of the agenda is not the headline fiscal transformation. It is the narrower, already-moving set of measures – funding instruments, enforcement mechanisms, regulatory streamlining – concentrated in defense, energy, and clean tech, plus capital-markets reform. These advance because they run through the ordinary legislative procedure (the EU’s standard qualified-majority lawmaking track) rather than requiring the unanimity or treaty change that blocks the big items.
The IAA is that pattern made concrete. Its main instruments: “Made in EU” preferences in public procurement and public support schemes; conditions on large foreign direct investments in emerging strategic sectors where a single non-EU country controls more than 40% of global manufacturing capacity – a threshold aimed squarely at Chinese battery, EV, and solar capacity – requiring that such investments generate economic value in the EU through jobs, innovation, and industrial development; and streamlined permitting through designated industrial acceleration areas that each member state must establish.
It is genuinely binding, and it is already contested. ACEA, the European automakers’ association, wants the “Made in EU” content rules loosened and the geographic scope narrowed. The think tank Bruegel has flagged internal contradictions, such as origin rules for aluminum that would raise input costs for the very automakers the Act is meant to help. China has called it discriminatory and warned of retaliation. Passage by end-2026 is the Council’s target, not a guarantee. But contested-at-the-margins is a different condition from politically-blocked: this is what forward motion looks like.
4. Implementation is fragmenting into sub-tracks — monitor accordingly.
Von der Leyen’s coalition-of-the-willing framing and the sector-siloed July plenary agenda point the same direction: implementation will occur through overlapping sub-tracks, not one unified competitiveness push. A single “what is the EU doing” monitoring approach will therefore miss the real signal. The unit of analysis is the legislative file and the coalition, not the communiqué.
What Could Go Right
Intellectual honesty requires the bull case. Defense rearmament is a genuine demand shock of a kind Europe has not seen in decades, and it flows disproportionately to European industrial capacity by design. Coalition-of-the-willing tracks, precisely because they bypass the slowest members, could move faster than EU consensus ever has – the history of European integration includes real examples (Schengen, the euro) of vanguard groups pulling the rest along later. And if Krugman is right that the productivity gap is smaller than the headline numbers suggest, Europe’s starting position is better than the prevailing pessimism implies. None of this changes the base case above, but a portfolio of European positions should not be constructed as if the downside scenario were certain.
A Note for Non-EU Firms
The IAA’s procurement preferences and FDI conditions are framed around China, but they do not apply only to Chinese investors. The Act marks a shift from decades of open, nondiscriminatory EU procurement toward strategic use of public demand to support EU production. This shift has direct implications for US and other non-EU firms selling into, or investing in, the covered sectors. Non-EU executives should assess exposure on both sides: as bidders facing “Made in EU” preferences, and as investors potentially facing economic-value conditions.
Strategic Recommendations
Treat 2026–2028 as a window for implementation, not origination. Bring proven AI and technology capability into Europe and scale it into defense, energy, clean tech, and the opportunities created by capital-markets reform, rather than betting on Europe as a place to originate frontier innovation. The capital markets to fund origination at scale are not there, and the funding data suggests the gap is widening.
Engage now on the IAA while the text is live. The content rules, geographic scope, and FDI thresholds are all still contestable, and ACEA’s pushback shows industry input is shaping the final text. This applies to non-EU firms with European exposure as much as to European incumbents.
Monitor at the file and coalition level, not the Brussels level. Track sector-specific legislative files (for automotive, the IAA’s actual passage and final content) and which member states are moving together on financing and permitting. Do not wait for a single Brussels-wide milestone that may not arrive on the original timeline, or at all.
Assign a low probability to the big-bang scenario. Treat the larger fiscal and governance transformation – common debt, treaty reform, qualified majority voting – as a low-probability event on a multi-year horizon, and do not build strategy around it materializing by 2028