The EU should fear for its self-preservation as it faces a “slow and agonising decline”, according to a hard-hitting report by the former Italian prime minister Mario Draghi that calls for an €800bn-a-year spending boost to end years of stagnation.

Warning that the Covid pandemic and Ukraine war had changed the rules of international trade to the EU’s detriment, he said the bloc needed additional investment of €750bn-€800bn a year – equivalent to 5% of the EU’s annual economic output – to build a more resilient economy and regain previously high rates of productivity growth.

“We are already in crisis mode and to ignore this is to slide into a situation you don’t want to have,” said Draghi, who is also a former head of the European Central Bank.

Outlining 170 main recommendations in a 400-page report, Draghi laid out the stark choices EU leaders must confront to prevent further economic decline and social unrest.

Draghi was commissioned last year to write a report on how the EU could boost growth while moving towards a greener and digital economy that would be competitive at a time of increased global trade tensions and military conflict.

He said growth had been slowing since the beginning of the century and it was urgent for EU countries to come together and coordinate policy to turn the situation around.

Speaking at the launch of the report in Brussels, Draghi said Europe’s productivity was “weak, very weak”, and the energy crisis had shown how the EU needed to end its traditional dependence on countries in other continents for vital energy sources and raw materials.

World trade was slowing, and had become less open to European countries, Draghi said, adding that Europe needed to invest more in defence for the first time since the second world war.

Another hurdle, Draghi said, followed a sharp decline in fertility that meant, also for the first time, Europe could not count on population growth to lift the collective economy.

“Growth has been slowing down in Europe for a long time and we can’t ignore it any longer,” he said. “We have to understand we are becoming ever smaller relative to the challenges we face. For the first time since the cold war we must genuinely fear for our self-preservation.”

EU growth had been persistently slower than that of the US in the past two decades, he said while China had subsidised many industries to a level where they could out-compete EU firms.

The report highlighted how 30% of EU startup businesses that had grown to be valued at more than €1bn – known as unicorns – had moved abroad, and mostly to list on stock markets in the US.

“There are too many barriers to scaling up,” he said. “We are also hindering growth in our traditional sectors. We want coordination to be a source of growth.”

He added: “Europe is nowadays stuck in a static industrial structure, populated by mid-technology companies, which are already mature. The leading firms in research and investment spending are the same ones we had 20 years ago – our cars.”

Asked where the EU would find up to €800bn to invest in new industries and retooling old ones, the European Commission president, Ursula von der Leyen, said there needed to be a common approach to accessing funds, hinting that the EU could borrow for the first time by accessing the international bond markets.

“Common European priorities need to be funded by common European money,” she said.

Draghi’s report comes against a backdrop of weakening investor morale across the eurozone, which has fallen for the third month in a row.

The Sentix investor confidence index dropped to -15.4 this month, down from -13.9 in August, and lower than forecast. Sentix warned that the eurozone economy was “threatening to tip into recession”, and blamed the economic problems in Germany.