In a landmark 400-page report on Europe’s competitiveness and future published last week, Mario Draghi, the former president of the European Central Bank, did not mince words. In the absence of annual investment three times greater than that delivered by the postwar Marshall plan, Mr Draghi predicted, Europe would face a “slow agony” as its economies failed to keep pace with China and the United States.

As the re-elected European Commission president Ursula von der Leyen begins her second term of office, she and other leaders should take heed of that stark warning. On Tuesday, Ms von der Leyen unveiled her new team of commissioners for the next five years. As they prepare to take up their posts, subject to MEPs’ approval, the clouds overhead are dark and threatening.

Politically and economically, Europe is at a crossroads. As witnessed in the recent European elections, the nationalist far right is making significant gains in the context of moribund growth, the cost of living crisis and an ongoing sense of malaise in post-industrial and rural areas. The ongoing impact of Russia’s war in Ukraine – and associated calls for increased defence spending in EU member states – is pressurising already stretched budgets.

Globally, China and the US are massively investing in – and subsidising – the green economy of the future, leaving European industrial giants struggling to keep up. The dramatic news that Volkswagen, once the biggest carmaker in the world, plans to close some of its German plants should be viewed as a wake-up call.

Mr Draghi’s plan for an overhaul includes greater economic integration and more emphasis on tech innovation and skills, after decades of relative neglect. He stresses the potential benefits of a capital markets union to match the EU’s single market for goods. But the most important takeaway is the call for common EU borrowing, on a grand scale, to finance investment in a transformative industrial strategy.

Taking Mr Draghi’s advice would mean belatedly calling time on the shortsighted, self-defeating economics of austerity that has hobbled European ambition, particularly following the 2008 crash. Balancing the books at the expense of beleaguered regions and the less well-off has helped fuel the rise of anti-immigrant nationalism across the continent. The precedent of the €750bn (£634bn) Covid recovery fund offered a contrasting glimpse of the fiscal power and solidarity the EU can mobilise – given the political will. As the global economy moves into a new, challenging era, Europe cannot afford to ignore the lessons of that success.

Sadly, the signs are that it may do just that. In Germany, notwithstanding the alarming rise of Alternative für Deutschland (AfD) and the red lights flashing in parts of the economy, Mr Draghi’s expansive strategy was rejected out of hand by the fiscally hawkish finance minister, Christian Lindner. In Brussels, Ms von der Leyen’s commission is committed to enforcing a return to stricter rules on deficit and debt levels, following their relaxation during and after the pandemic.

At a time of deep social insecurity, and acute economic and environmental challenges, this familiar direction of travel will lead to further stagnation and low growth. That, in turn, will give the far right more scope to target green measures as unaffordable and to fuel anti-immigrant sentiment. A paradigm shift is urgently required. Having commissioned Mr Draghi’s report, Ms von der Leyen should take its message on board.

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