Mario Draghi's report on the state of the European economy is meant as a wake-up call. But will Draghi's alarm be heard, or will European policymakers hit the snooze button?

The report points to three areas where Europe is economically challenged. The European Union lags behind the United States and China in innovation, especially in areas involving advanced technologies. Its competitiveness is handicapped by high energy prices. And its fragmented defense industry weakens its security.

The report then argues that deeper integration is needed to address these shortfalls. Europe needs to complete its capital markets union to foster its venture capital industry. It needs fewer regulatory roadblocks in order for new companies to scale up. It must build an integrated power grid and coordinate investments in decarbonization to bring down energy costs. And Europe must undertake more defense spending at the EU level. Here the costs of failing to collaborate are reflected in the fact that Europe produces and operates 12 battle tanks, whereas the US focuses on just one.

All of this implies the need for more joint decision-making, which puts Europe at another of those critical junctures where it must choose between the status quo and a quantum leap to deeper integration. It has taken such leaps before, agreeing to create the Single Market in 1986, introducing the euro in 1999, and moving to Banking Union in 2012. But will the challenges identified by the Draghi Report prompt a similar reaction?

One answer, espoused by Jean Monnet, the intellectual godfather of the EU, is that quantum leaps in European integration occur when leaders realize there is no other way to avert the worst. The Draghi Report seeks to leverage this theory by adopting the language of crisis.

But not everyone will agree that Europe's challenges rise to the level of an existential crisis. Moreover, some quantum leaps in European integration have occurred during periods of relative stability. The Delors Report, which laid the groundwork for the euro, was followed by financial crises, rather than negotiated in response to them. Some crisis-ridden periods, such as the 1970s, did not hasten integration. Rather, they ushered in a "dark age" or lost decade of stagnant progress toward "ever-closer union." Monnet's theory, clearly, is underspecified.

Then there are so-called neo-functionalist theories of European integration, which suggest that if Europe can somehow get the integration process going in one domain, the progress it makes will spill over into other issue areas.

Thus, creation of the Single Market, which entailed the removal of capital controls, applied pressure to move to a single currency, which in turn created pressure for banking union. Economically, a single currency implied further efficiency advantages once the Single Market was established, as did a single banking supervisor once the single currency was introduced. Politically, the removal of capital controls created an exit option for financial interests, which used their leverage to push for the single currency and banking union.

Recent events are a reminder, however, that political decisions are not always driven by efficiency considerations. Nor is it obvious which way special interests will push. Currently, politicians in Berlin are pushing back, neo-functionalist spillovers be damned, against efforts by Italy's UniCredit to purchase a controlling stake in Germany's Commerzbank. Evidently, pressure to hasten integration can equally precipitate a backlash, as opposed to creating forward momentum.

Alternatively, some argue that European integration is driven or stymied by hard-headed bargaining among governments. Integration will occur if national interests converge - if governments all see themselves as beneficiaries of, say, more collaboration on defense spending. History suggests, however, that some governments will fear that their countries will be harmed - their domestic defense industries will be the ones going out of business - leading them to resist calls for deeper integration.

Or perhaps governments can concoct mutually advantageous policy trades, as in the 1990s, when France dropped its opposition to German reunification in return for Germany's commitment to proceed with monetary unification. Given the multiple, interlocking challenges identified by the Draghi Report, identifying such mutually advantageous policy trades is an approach that may have legs.

A final view holds that national governments agree to deeper integration when it strengthens them domestically. If they can more effectively deliver on domestic political promises when acting in concert, then national actors will reap popular (and electoral) support. In the 1950s, governments enhanced their constituents' sense of security by creating a European Coal and Steel Community that locked Germany peacefully into Europe. In the 1980s, they delivered prosperity by creating the Single Market. As a result, national governments were strengthened by these integrationist initiatives.

The Draghi Report has opened the door to similar steps. Whether European leaders are prepared to walk through it will be evident soon enough.

From Project Syndicate