Europe's economic success in the 1950s and 1960s was driven by innovation, competitiveness, and advanced technologies. However, the global economy has changed, and Europe is now losing its competitive edge, with stagnant growth, lagging productivity, declining investment, and an aging population. High energy prices, unfair trade policies, and subsidies in other regions, along with restrictive European regulations, are further straining European industries.
Indeed, EU growth now trails not only the US and Japan but is also starting to fall behind emerging economic powerhouses like China and the South East Asia region. Long-term trends indicate that the EU has grown at its slowest rate (average of 1.5% GDP growth per year since 2000 compared to 2% and 8.4%, respectively, for the US and China).
Moreover, the EU lags China and the US in investment activity. While the US and China together account for around 30% of global investments, the EU only makes up a 10% share. This puts the EU at a strategic disadvantage vis-a-vis its competitors, with less ability to innovate and expand its economy. We are no longer part of the global competition in Al and technology, and our strategic industries will pay the price.
To address these challenges, GLOBSEC's report recommends that the new European Commission adopt a comprehensive approach:
Ensuring robust funding support for strategic sectors: Sectors like Al, energy, digital infrastructure, biotechnology, and computing technologies promise future-defining innovations critical to economic development, international competition performance, and national security. No country, or region, that disregards these strategic sectors will be able to compete or shape the global economy, or even its own. This fact is broadly recognised by China, the US, India, Saudi Arabia, the UAE, and others who have sought to boost these strategic sectors, harnessing enormous public and private resources to this end. The EU cannot compete in these key areas unless it does so too. For this reason, it is imperative that the EU supplement national initiatives to promote innovation and digitisation by distributing funding through a Europe-wide mechanism.
Reconsidering rules on national aid and subsidies: The incoming EU administration should review the current national subsidies landscape and identify areas where there is potential for (re) tightening rules to discourage harmful intra-EU competition and "beggar-thy-neighbour" policies. Such measures not only disadvantage smaller Member States but also the ability of businesses to grow past the size of their home countries. Any reform, however, should not come at the expense of supporting businesses.
The policy brief Forging a More Competitive EU offers recommendations on the priorities that the European Commission should adopt in the area of energy security and green transformation. The brief is part of the GLOBSEC consultation project and is included in the publication Pivotal Moment for Europe: Central European Proposals for the Next EU Leadership.
Read the full report and individual chapters below.