Mario Draghi's outlook for Europe is grim. What's worse is though he knows how to make it better, he probably can't.

“We're going to be a society that basically shrinks,” the former European Central Bank chief said in Brussels on Monday as he presented his ideas to relaunch the economy and hold back the tide of American and Chinese dominance.

It was his 77th birthday last week and maybe those celebrations played a part in the bleak analogy: “We share this cake which becomes smaller and smaller ― with a smaller number of people."

The diagnosis he put forward as Europe slides into the economic wilderness is widely shared by experts. What to do about it is the hard part. 

Bad design, too expensive, haphazard

What’s clear is the European Union has a major productivity problem. Its workers generate less output per hour than those in the United States.

Much of this is to do with technology. Over the past 20 years America has dominated the transition to digital while Europe has largely been absent. 

There are probably as many reasons for Europe's woes as Draghi had birthday candles: The EU is hampered by badly designed financial markets; energy is too expensive; R&D is haphazard and split among many different countries; its increasingly polarized politics makes agreement on anything as frustrating and as painful as pulling teeth.

In short, Europe is less than the sum of its parts.

And a snapshot of the past two decades, provided by Draghi on Monday, presents just one example how.

“The leading firms in research and investment-spending are the same ones we had 20 years ago ― cars,” he said. "The United States used to be the same, autos and pharma, 20 years ago. Now it's all digital.”

China isn't just catching up. In areas like the electric vehicle industry, it is even leapfrogging Europe.  

Magic wand

Draghi's vision of how to respond, one focused on clean energy, high-tech and resilience, is ambitious. The proposals span energy market reform, looser merger rules and ― one for the Brussels nerds here ― even changes to the EU’s legislative consultation process (known in the jargon as “comitology”)....

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