Europe has achieved great things. Leaving behind a history of violence and war, the continent and its foremost representative, the European Union (EU), has succeeded in managing crises and representing the economic and political interest of Europeans domestically and internationally through multilateral institutions such as the common market or the Euro. This is why the imminent economic deterioration, set to be long-term, must be addressed with the utmost priority. Yet, consistent stagnation in innovation and competitiveness has not sufficed to convince the European public and its politicians of the threat that long-term economic decline may have on the Union and the values it upholds. To upkeep those values, today’s political efforts must shift towards the reactivation of Europe’s long term economic engines. It is in this context that European citizens have to consider that their rich heritage is endangered, and that action is needed now to adapt Europe to a transforming world.
Domestically, countries experienced a rise of living standards through strong welfare states that strengthened access to public services like quality education and healthcare. This led to a post-war age marked by peace and prosperity, in retrospect, an idyllic period. In recent years, however, the Union has faced several crises that have tested the strength of its progress. While some have indeed reinforced European institutions, others have deteriorated the EU’s economic strength and institutional dynamism, reducing its outreach in international politics. The Great Financial Crisis, the subsequent debt crises, the migration crisis, Brexit, the COVID-19 pandemic, the Russian invasion of Ukraine, and the escalating inflation in recent years, have all contributed to fatigued institutions with eroded economic competitiveness.
While the EU has been able to survive these continuous waves of crises, a long-term crisis is well underway: economic stagnation. Europe faces a large deficit in terms of innovation and competitiveness in the international market. For a group of countries that depend on the export of complex technologies to sustain their welfare states, this issue is crucial. The EU will have to address a difficult international environment, even if it means sacrificing some of its values.
Innovation has been pivotal in Europe’s relegated role in the economic realm. Having already missed out on the digital revolution and its economic advantages, the EU has not properly addressed the lack of entrepreneurial innovation. As the well-awaited 2024 Draghi Report argues, there is a significant gap between the United States and EU productivity curves, caused mainly by the failure of Europe to fully digitalise. The middle technology trap has led European firms to invest less in innovation and stagnate in a circle of low investment and productivity. In 2021, American firms spent twice as much as their European counterparts on research and innovation.
Investment must be expanded and reformed to include a wider outreach and a more diverse project portfolio. Ranging from infrastructure to education, the European countries will need to adapt to the new needs of the global economy to keep their privileged position in the market, and closing the investment gap will require an effort of the public and private sector of 5% of the GDP, as the report explains. Furthermore, the commercialisation of already existing innovative technologies ought to be enhanced by reducing regulations on technology, and investing in the education of skilled workers, based on the needs of future business in the digital sector.
Closing the skills gap and promoting investment in the tech sector is critical, yet commercialisation might be lacking another essential component: the entrepreneurial vision. Without strong leadership of individuals that are capable of convincing important stakeholders (including investors and policy-makers) of their projects, commercialisation of new technologies on the scale needed to succeed is bound to fail. It is therefore time for European entrepreneurs to convince others of their capacity to compete in an uncertain international environment.
Europe’s future strategic autonomy in international politics could be overshadowed by the technological and economic giants of the West and the East. This is, in the long run, a major risk.
These needs have not gone unnoticed. The EU has launched the Competitiveness Compass initiative, aimed at reducing regulatory burdens, addressing issues of commodity dependence, high energy prices, and Europe’s late entrance to the technology sector. Further, in early 2025, the new German government led by Christian Democrat Fredrick Merz, announced a €1 trillion investment plan to boost security and infrastructure funding, a strong signal from Europe’s traditional economic powerhouse. Yet, the question remains open — will these measures be enough to address the issues of innovation, competitiveness and entrepreneurship?
As Europe accommodates itself within the new global order, it seeks to rely on its traditional industries that previously drove economic growth. The EU, however, needs to plan ahead for a future in which German cars and French planes are no longer the foundations for economic stability. This requires a cultural shift that allows new industries to be created through innovation, and above all, the willingness to transform itself.
The way out of this conundrum consists of realising that in order to continue a value-based foreign policy, the EU has to secure its future economic prosperity. In order to accomplish that, it has to first deal with actors in the economy that are less responsive to values, and more so to economic incentives. In the long run, Europe will have to adapt and transform through a new generation of businesses that take advantage of the continent’s dormant potential. Europe cannot afford to rest upon its past laurels, it must salute the new, for that is the way of progress.
Writer: Juan Felipe Borrero
Editor: Sergio Uribe Henao
Photo Credit: © “Low Angle Fotografie von Hochhäusern” by Paul Fiedler (uploaded September 25, 2020) on unsplash
